Dear Traders,
Some of this is commentary from Investors Business Daily. It makes sense to have some quality KLSE shares going into 2009, I expect that 2009 will likely be a much better year for the markets than the year we have just endured. In the immediate term, the volatility index is in a downtrend. This implies that the wholesale liquidation is easing up.
We are also on the verge of the Obama administration “stimulating” the economy through public works and infrastructure projects, likely to the tune of nearly $1 trillion. It will be difficult for the new administration to surpass the previous administration’s level of corruption and “crony capitalism”, but I wouldn’t place a bet that they won’t.
And even without the inherent corruption, government stimulus plans are notoriously inefficient and wasteful. A quote from The Wall Street Journal, sums it up well:
"Keynesian 'pump-priming' in a recession has often been tried, and as an economic stimulus it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment."
So, while the long-term implications will probably be a disaster, Obama’s program is likely to stimulate the economy and invigorate the markets in the near term.
The Federal Reserve has also signaled that it will do everything within its power to stimulate the economy. In the eyes of central planners, desperate times call for desperate measures. And the Fed is clearly desperate.
With their latest policy statement, issued on Tuesday, it is clear that the monetary helicopters have arrived. Not only have short term interest rates been cut to nearly zero, the Fed has also stated that it will resort to “alternative” means to juice the economy.
In typical fashion, the statement was crafted in language that obfuscates what is really going on. But when you strip away the complexities and jargon it amounts to this: (1) the Fed will use its balance sheet to manipulate the credit and equity markets directly and (2) the central bank will fabricate whatever amount of “money” is necessary to stimulate the economy.
And that brings me to the crux of the issue. We now know that it was a very bad idea to paper over the dot-com bubble with an even bigger bubble in real estate. Easy money and more debt did nothing but cause a greater problem down the road. It is the equivalent of trying to revive a drunk by pouring another shot of whisky down his throat.
And that is exactly what we are doing all over again, papering over all the previous bubbles with the biggest one of all – a bubble in government bonds. Forget the fundamentals for a moment (You know, like the fact that our government is in the hole for more than $70 trillion, when you factor in retirement and health care obligations, along with foreign debt) and just take a look at the chart of long-term U.S. Treasuries.
Just like all the other bubbles, this one too will eventually collapse.
Below is the TG chart of the US 30 year bond. Volume is dropping as price blows off which is evidence of no demand by professionals.
With interest rates at less than 2 % in most countries money will flow into equities and gold. Our paper money is guaranteed to lose purchasing power. Man funds is a safe haven no matter what happens
Have a Merry Christmas and prosporous New Year
Bill
Some of this is commentary from Investors Business Daily. It makes sense to have some quality KLSE shares going into 2009, I expect that 2009 will likely be a much better year for the markets than the year we have just endured. In the immediate term, the volatility index is in a downtrend. This implies that the wholesale liquidation is easing up.
We are also on the verge of the Obama administration “stimulating” the economy through public works and infrastructure projects, likely to the tune of nearly $1 trillion. It will be difficult for the new administration to surpass the previous administration’s level of corruption and “crony capitalism”, but I wouldn’t place a bet that they won’t.
And even without the inherent corruption, government stimulus plans are notoriously inefficient and wasteful. A quote from The Wall Street Journal, sums it up well:
"Keynesian 'pump-priming' in a recession has often been tried, and as an economic stimulus it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment."
So, while the long-term implications will probably be a disaster, Obama’s program is likely to stimulate the economy and invigorate the markets in the near term.
The Federal Reserve has also signaled that it will do everything within its power to stimulate the economy. In the eyes of central planners, desperate times call for desperate measures. And the Fed is clearly desperate.
With their latest policy statement, issued on Tuesday, it is clear that the monetary helicopters have arrived. Not only have short term interest rates been cut to nearly zero, the Fed has also stated that it will resort to “alternative” means to juice the economy.
In typical fashion, the statement was crafted in language that obfuscates what is really going on. But when you strip away the complexities and jargon it amounts to this: (1) the Fed will use its balance sheet to manipulate the credit and equity markets directly and (2) the central bank will fabricate whatever amount of “money” is necessary to stimulate the economy.
And that brings me to the crux of the issue. We now know that it was a very bad idea to paper over the dot-com bubble with an even bigger bubble in real estate. Easy money and more debt did nothing but cause a greater problem down the road. It is the equivalent of trying to revive a drunk by pouring another shot of whisky down his throat.
And that is exactly what we are doing all over again, papering over all the previous bubbles with the biggest one of all – a bubble in government bonds. Forget the fundamentals for a moment (You know, like the fact that our government is in the hole for more than $70 trillion, when you factor in retirement and health care obligations, along with foreign debt) and just take a look at the chart of long-term U.S. Treasuries.
Just like all the other bubbles, this one too will eventually collapse.
Below is the TG chart of the US 30 year bond. Volume is dropping as price blows off which is evidence of no demand by professionals.
With interest rates at less than 2 % in most countries money will flow into equities and gold. Our paper money is guaranteed to lose purchasing power. Man funds is a safe haven no matter what happens
Have a Merry Christmas and prosporous New Year
Bill
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