How Quantitative Easing Destroys Jobs

November 19, 2010

On Wednesday Fed chair Ben Bernanke met with senators in a closed-door session. Bernanke said that he “remains absolutely committed to not letting inflation or inflationary expectations get out of control.” “Alabama Senator Richard Shelby, the senior Republican on the Banking Committee, said Bernanke cited an estimate that the program may help create 700,000 to 1 million jobs.”

Of course, if simply printing money could create jobs, without creating inflation, we would all be rich. Unfortunately, the Fed’s quantitative easing is likely to destroy jobs.

This morning Lands’ End sent me an e-mail announcement of their latest sale. One part of the sale caught my eye—spend $250 and receive $100 off with free shipping. This 40% off offer included any items already on sale.

Lands’ End can only dream of the good old days when their sales ran only at the end of the season. Winter clothes would not go on sale until January. And now, here we are the week before Thanksgiving, and everything is at least 40% off.

This is probably a pretty good harbinger of how consumer spending will go this holiday season. With that in mind, consider this Bloomberg News story from earlier this week:

Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs.

“It’s a little terrifying to deal with cotton suppliers now,” said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients.

Cotton futures in China have surged more than 70 percent this year and were at a record earlier as the global economy emerged from recession, allowing people to spend more on clothes. Production of the fiber in China, the world’s biggest user and importer, is forecast to lag behind demand for a 12th year, cutting its stockpile to the smallest since 1995, according to the U.S. Department of Agriculture.

To be sure, there are wide differences of opinion about the impact of Fed policy; but most analysts believe that the rise in commodity prices this year is a new asset bubble created by anticipation of the Fed’s policy of quantitative easing. And the effect on Lands’ End is clear.

Do you think Lands’ End is going to be able to raise prices and pass along their increased costs? I don’t. If they had that pricing power they would not already be running 40% off sales. Instead their margins are going to get squeezed by rising commodity prices. Lands’ End will cut back in other ways—they may lay off staff and downsize.

Of course, I could be wrong. Commodity prices may crash from here. If so, we will hear news stories about the financial institutions and hedge funds that made incorrect bets. We will be told we need to bail them out for our own good. Or perhaps commodity prices will stay high; perhaps Lands’ End has pricing power that I’m not aware of. They could then increase prices of their clothing. In the face of declining real incomes, what will the average American household do? Will they decrease their spending still further, or will they increase their credit card balances to finance their clothing purchases? I would bet spending decreases. Then quantitative easing will have had the effect of chilling the economy.

Lands’ End will not be the only organization caught between understandably tightwad consumers and rising commodity prices.  If they are forced to lay off workers, they will not be the only firm to do so. Thanks to the Fed, for commodities traders and hedge funds specializing in commodities, 2010 may be a good year; for the average American, not so much.


The Deluded and the Delusional

November 9, 2010

There is a real divide among Americans, and it is not Republicans versus Democrats. It is a divide that runs far deeper than political affiliation. The divide is between those who believe they or others can and should control the world and those who believe that the attempts to control are counterproductive and misguided.

Senate majority leader Harry Reid from Nevada has given us great insight into the mind of the wannabe controller. Appearing on MSNBC shortly before Election Day, Reid expressed frustration that he was not doing better in the polls and exclaimed, “But for me, we’d be in a worldwide depression.” “I’ve been running the country, or at least helping to run it,” Reid told a reporter who asked why he was not campaigning more. Reid, like many politicians, is delusional. According to Merriam-Webster, to suffer from delusions is to hold false beliefs “regarding the self or persons or objects outside the self…despite indisputable evidence to the contrary.”

The idea that it is desirable to control a modern, complex economy reflects profound ignorance. Yet, Reid and others in Congress spend almost 100% of their time trying to do just that by considering and passing substantive laws.

Friedrich Hayek has explained the difference between substantive and formal law. Substantive laws are written to achieve specific outcomes. To achieve those ends, law makers pick winners and losers; people are not treated equally under substantive laws. In his seminal book The Road to Serfdom Hayek explained:

Where the precise effects of government policy in particular people are known, where the government aims directly at such particular effects, it cannot help knowing these effects, and therefore it cannot be impartial. It must, of necessity, take sides, impose its valuations upon people and, instead of assisting them in the advancement of their own ends, choose the ends for them. As soon as the particular effects are foreseen at the time the law is made, it ceases to be a mere instrument to be used by the people and becomes instead an instrument used by the lawgiver upon the people and for his ends.

In other words, Harry Reid and other politicians propose laws which benefit some individuals at the expense of other individuals; and importantly, they serve their own political ends to receive sufficient contributions from lobbyists to run their reelection campaigns.  They are redirecting the economy towards the ends they prefer and away from the ends that would otherwise have been chosen. These distortions lead to faltering economies and ultimately economic crises.

In The Road to Serfdom Hayek explained why societies regress as they focus on substantive rather than formal law. Formal laws establish the rules of the road, they do not pick winners and losers, and they do treat everyone the same. The U.S. Constitution is an example of formal law. Hayek gives the example of the rules of the road (speed limits, drive on the right, etc.) which are formal laws; substantive laws would order drivers where to go.

The delusional need the deluded in order to obtain and maintain power. The deluded are those who choose to be deceived that Harry Reid, Ben Bernanke, and others can “run the country” and save us from, rather than cause, economic disasters.

Breathless headlines declare that the Fed’s current round of quantitative easing is bold medicine to jumpstart the economy. Newspapers often act as though Ben Bernanke has a magic wand; they’d have us believe that by printing up paper money Bernanke will somehow solve our economic problems.

Of course the truth is no one controls, or can control, the United States economy. Unsustainable budget deficits, crippling substantive laws accumulated over decades, and most importantly, trillions of dollars of assets artificially inflated in price due to past Fed interventions are propelling the country into further economic hardship. Any hope of a speedy recovery is destroyed as the delusional go on believing they can control the economy and the deluded go on hoping that the delusional will save at least them. I wrote “at least them” because the deluded say, “The heck to everybody else; just save me.”

Explaining the virtues of the formal law, Hayek wrote, “In our age, with its passion for conscious control of everything, it may appear paradoxical to claim as a virtue that under one system we shall know less about the particular effect of the measures the state takes than would be true under most other systems.…”

When the deluded are ready to understand and embrace this virtue of the formal law, the Harry Reids and Ben Bernankes of the world will be reduced to giving their opinions at Starbucks and cocktail parties. When they are no longer deluded, the American people will cease to give power to the delusional.

Who Gets the Pie?

October 27, 2010

Suppose a family of four was setting down to desert after dinner; a pie is cut into eight equal pieces. Each member of the family received two slices. Now, suppose one member of the family said, “Let’s create eight additional slices and split the pie into sixteen equal pieces.” Clearly, if each member of the family received four slices there would be no practical reason (other than a smaller serving size) to create the additional slices. The amount of pie each family member received would be exactly the same.

Suppose that the pie cutting member of the family has an ulterior motive. He wants more pie at the expense of everyone else. So after slicing the pie sixteen ways, he gives everyone the same two slices they previously had and keeps the eight additional slices for himself. Someone in the family might remark, “My slice of pie is smaller and less filling.”  “No, you are mistaken,” he lies. “You are receiving the same amount of pie you always have.”

This little story gives us insights as to why the Federal Reserve inflates the supply of money. Have you been trying to make sense of the incessant claims by policymakers and some economists that in order to save the economy the Federal Reserve has to engage in a new round of quantitative easing? The Fed tells us that our inflation targets may be too low and may need to be increased. You might be asking yourself the obvious question—how would more inflation help the economy?

The answer is, it won’t. In the pie example, after cutting the pie in eight pieces, each of the four people expected two slices. If you cut the pie into sixteen slices and gave everybody four slices, increasing the number of pie slices will have no effect. But when people expect two slices, if the pie cutter increases the number of pie slices to sixteen, the pie cutter will have slices to keep for himself or to give to other favored pie eaters—increasing the number of pie slices has an effect. And that is exactly what the Federal Reserve does. When the Fed increases the supply of money and credit, the new money is not injected equally throughout the economy. For some, due to inflation, their slice of the pie shrinks; others get more.

Admittedly my pie analogy is simplistic. I use it to help cut through the idea that we should leave policy to the experts. But how can an expert like Ben Bernanke be so wrong? Some say he is an innocent Chauncey Gardner character; others believe he is simply a puppet whose strings are pulled by his banking masters. The more likely explanation is that Ben Bernanke is who he seems—a bright but limited man being guided by incorrect theories that have taught him that bright men can and should control the economy.  The end result of our hubris will be suffering on a larger scale than we can imagine. No, our is not a typo—it is our collective hubris that empowers Bernanke’s personal hubris.

Regardless of Bernanke’s motives the question remains: who is getting the new slices of pie? Here are some recent examples:

This week the New York Times reported that “the real wage and salary income of finance industry employees based in Manhattan rose nearly 20 percent in the first quarter of this year. That surge helped make Manhattan the fastest-growing county in the United States in terms of terms of year-over-year gains in income.”

This week when asked about receiving bags of cash from Iran, Afghanistan  President Hamid Karzai said “This is normal…The U.S. gives us large bundles of cash as well.”

Of course, asset bubbles form as new money is injected in explosive amounts. Grain prices and other commodities have increased sharply with wheat and corn both up over 50% this year. If firms try to pass on their higher costs through higher prices, family budgets feel the pressure of the increase. When firms are unable to raise prices due to market pressure, they feel increased pressure to reduce labor costs and unemployment increases.

Bloomberg reported yesterday on the Fed-induced  bubble in junk bonds: “The lowest-rated junk bonds are the most expensive corporate debt following a Federal Reserve- induced rally in high-risk assets, adding to concern fixed- income securities are overvalued.” No doubt after this bubble bursts, “for our own good,” we will be giving our pie to those who recklessly invested again.

Yet, we are told, if not for the heroic efforts of Ben Bernanke, we would have a terrible depression and no pie at all. Of course, a clear thinking child could see through the lies. A child might ask: “Has Ben Bernanke created even one new pie?” The answer, of course, is “no”—his policies have helped to redistribute the pie: Ordinary Americans who are not subsidized have given their share of the pie to the financial services industry, to contractors waging war in Afghanistan, to General Motors, to junk bond investors, and you name it.

This is an uncomfortable post to write. I have always taught that free market economies expand the supply of the proverbial pie. On a free market, there is no reason to see the world through win-lose eyes. Yet, we no longer have anything resembling a free market. For many Americans, their share of the pie is now contracting; a new round of quantitative easing will only reduce their share of the pie further.

The Great Splintering Ahead

September 30, 2009

One year ago yesterday, the Dow Jones Index fell 777.68 points. Today, we are fed contradictory propositions: The bailouts have saved us from another depression. And, the Republicans are poised to capitalize on growing public dissatisfaction with the economic policies of the Democrats. Both propositions are false.

Long time Wall Street observer, Richard Russell recently wrote: “Fed Chairman Benjamin S. Bernanke is like a madman during a hurricane. He’s shaking his fist at the sky and vowing to stop the wind.” Of course, Bernanke is doing more than that; he is claiming he has stopped the wind. More than a few agree he has.

When the calm eye of this economic hurricane passes and economic storms rage again, it is a dubious proposition that the public will turn back to the Republicans. Of course, some diehard partisans will. But for many more, the Republicans have been discredited as a pro-war, big deficit, corporate welfare loving, hypocritical bunch. If you said that description fits the Democrats as well, you’d get no argument from me.

We are at two major inflection points in history. We have come to the end of the road for our deficit-based economy. More wasteful stimulus will not bring to life this dead horse. We have also come to the end of the road for this fake wrestling match between Democrats and Republicans, where the party out of power promises to reform the evils committed by the party in power; then, once in power, commits to a variation of the same positions they campaigned against. As in professional wrestling, promoters have to keep changing the good guys and the bad guys in order to keep the public interested. As my brother-in-law once quipped bitingly at a family outing: “It’s time to get new characters for this show.”

No, the Democrats and Republicans, however discredited, will not disappear overnight. But, they will face new competition. First, the good news: There will be at least one major pro-freedom party—led by a Ron Paul type individual. This party will be for both economic and civil liberties. They will stand for lower taxes and lower spending; they’ll stand against needless military adventures. We can thank the Libertarian Party for tilling this soil for so many years. Yet, for various reasons, I don’t see the Libertarian Party emerging to occupy this ground. The pro-freedom party that emerges will also have to touch people’s hearts.

Most Americans alive today have grown up experiencing a world untouched by war and economic hardship. It is understandable that we believe life will always get better. When economic losses and deprivations beyond our imagination visit us, we will be bewildered; leaders of a pro-freedom party will have to respond to Americans with heartfelt compassion. At the same time, these leaders will have to point the way to a hopeful future based upon timeless principles. Such pro-freedom leaders will have to counter a new populist-based movement that will insist Americans are never to suffer loses; this, the populists will claim, is our entitlement. The new populist-based movement will promise cheap fixes and more income redistribution. To shift attention away from problems at home, populists may follow an aggressive foreign policy.

In my experience, many Americans lack a basic understanding of the history of poverty and war that has routinely plagued mankind. The suffering of others has been swept from view, because we don’t want to deal with the possibilities of suffering for ourselves. In his book The Three Marriages, David Whyte writes:

Once we have renounced the need to live without suffering, to be special, to be exempt from the losses and doubts that have afflicted all people since the beginning of time, we can see the difficulties of others without being afraid ourselves. Our fearful, disappointed surface face starts to fall away. We could welcome other people into our lives because no matter their fears, they do not make us afraid.

This journey—the journey of accepting our losses without lashing out, while working towards a genuine and lasting prosperity—will take spiritual maturity. Such a spiritual maturity would involve a deep understanding of our connection to all living beings. We must understand that our choice to live by higher values and timeless principles is the pathway to achieve true happiness and sustainable prosperity.

It would be a mistake to believe that, at this point in our history, most Americans are prepared to make such a journey. Many are. Still, many are not. And for those who are not, the coming great splintering of our political parties will produce populist leaders who will tell them what they want to hear: That there is a quick fix, and that others are to blame. Some of these leaders will be comparably benign; others will be frighteningly demagogic and warlike.

Beyond envisioning serious competition for Democrats and Republicans, I have no idea what our political future holds. If an election were held today between Obama, McCain, a comparably benign populist such as Palin, and a pro-freedom leader such as Ron Paul, my guess is that Obama would win again. In 2012, there will be choices on the political spectrum that we never expected to see; the results will depend upon how spiritually mature our nation has become.

A Dose of Reality

September 18, 2009

This week, Ben Bernanke told us that the recession “is very likely over.” Jim Cramer told us, “We’re in much better shape than anyone could have hoped for a year ago, despite the pessimistic chatter.” I have often reviewed the dismal records of Bernanke and Cramer; you would be wise to manage your finances without considering their prognostications. A news story yesterday echoed Bernanke and Cramer: “Americans’ wealth rose this spring for the first time in nearly two years, with stocks and home values gaining as the recession faded.” No doubt, with these kinds of stories appearing almost daily and the Dow approaching 10,000, many small investors will be caught up in the growing bullishness.

If you are worried that you will be left behind by a new bull market, read a recent interview with Nassim Taleb, author The Black Swan: The Impact of the Highly Improbable. Talem—who does not believe that experts such as economists, bankers, and government officials can control the economy—is an outsider to the orthodoxy.

Notably, in the interview, Talem disputes those who say the economic crisis was an unpredictable  “black swan event,” to use the language of his book. His failure to predict should disqualify Bernanke from making policy about anything. Below are excerpts from the interview in Toronto’s Globe and Mail.

Nassim Taleb (NT): Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient’s symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.

Margaret Wente (MW): Are you saying the U.S. shouldn’t have done all those bailouts? What was the alternative?

NT: Blood, sweat and tears. A lot of the growth of the past few years was fake growth from debt. So swallow the losses, be dignified and move on. Suck it up.

MW: I gather you’re not too impressed with the folks in Washington who are handling this crisis.

NT: Ben Bernanke saved nothing! He shouldn’t be allowed in Washington. He’s like a doctor who misses the metastatic tumour and says the patient is doing very well. The first thing I would tell Chinese officials is, how can you buy U.S. bonds as long as Larry Summers is there? He’s a textbook case of overconfidence. Look what happened to Harvard’s finances. They took a lot of risk they didn’t understand, and it was a disaster. That’s the Larry Summers mentality.

To use a baseball analogy, if you believe Bernanke, we are in the 9th inning of a game. The home team, with their star reliever on the mound, is about to win. If you look at our problems through another lens—a lens which rejects the idea that economies can be cured by throwing good money after bad—we are in the 3rd or 4th inning of a global economic crisis with the most frightening part of the game still to be played.

As Bernanke Takes His Victory Lap

August 30, 2009

Conventional wisdom is nearly unanimous: Ben Bernanke has saved the world. Last week, bullish sentiment in stocks, as measured by the Daily Sentiment Index, exceeded 89%; the Intelligent Advisors survey found less than 20% bears.

Isn’t this great news for the economy? On the contrary, extreme sentiments usually coincide with major stock market reversals. The Daily Sentiment Index is higher than it was in October, 2007, when the stock market made its all time high—such an extreme reading now is an alarm signal.

How can so many people be so wrong? Conventional wisdom can be dangerously wrong. Professionals often go along with the crowd. Why? Professionals in any field have similar training, similar socialization, and similar views of the world. In time, when they are proven to have been wrong, they chant the big lie, “No one else saw this either.”

Think of other knuckleheaded expert advice you’ve heard recently. We are entering the flu season; more and more studies confirm that deficiencies of Vitamin D are associated with depressed immunological systems.  Still, many doctors advise sunscreen. (No, I’m not advising sunbathing. When the sun shines, get out for your normal activities.) Do you remember when experts assured us that housing prices could only go up? Weren’t we all told that ethanol was good for the environment? It was going to solve our energy problems, wasn’t it? Perhaps you grew up with “expert” nutritional advice to eat margarine with “healthy” hydrogenated vegetable oil and drink four glasses of artery-clogging milk a day.  This summer, were you impressed by the Food and Drug Administration (FDA) expert pronouncement that silver mercury fillings are safe, even for children and pregnant women? Did you think, “Oh, silly me for switching to composite fillings”?

Last week, as President Obama nominated Ben Bernanke for another term, he described Bernanke as approaching the crisis “with calm and wisdom, with bold action and out-of-the-box thinking.”

What is wisdom? In their book Sanity, Insanity and Common Sense Rick Suarez, Roger Mills, and Darlene Stewart write:

Wisdom is a level of intelligence, innate in every human being, which is deeper and more comprehensive than what we associate with an IQ score. Wisdom exists outside of individualized frames of reference, which is why it has not been more readily realized by a humanity that is wedded to fixed patterns of thinking and perceptions of reality. When wisdom is realized by an individual, it frees him from his own fixed views of life…

In short, we are not the source of wisdom; wisdom sets us free from our in-the-box thinking. The authors add:

Wisdom cannot be realized through mental struggle of the intellectual process of trying to figure out problems. The reason that wisdom is not more frequently recognized is that human beings have traditionally idolized intellectual and analytical reasoning, and wisdom does not come from these thought patterns.

Ben Bernanke may have a high IQ, but he is in-the-box. In-the-box thinkers see things in systemically distorted ways.  A wise person doesn’t pour unprecedented levels of credit on a problem caused by excessive credit.

Ben Bernanke is not wise. A wise man recognizes a problem and the false beliefs behind it. As late as 2006, Ben Bernanke didn’t recognize the housing bubble. A wise man—because he sees but doesn’t share delusions—offers the world the keys to a fresh start, if that is what people desire.

Out-of-the-box thinkers do not become Fed chairs. Ben Bernanke is a man of his time. He is a manifestation of the collective delusion, held by the public, that it is possible to get something for nothing. If Ben Bernanke were not on the stage, does anyone doubt that many other functionaries would stand-in to play his part, ready to do the same in-the-box job?

In a few weeks, Ron Paul’s out-of-the-box book End the Fed will be published. Read the book for yourself; decide whether Paul or Bernanke is the wise man. Paul’s training was in medicine, and he practiced as a physician. As an avocation he studied economics. After all, does not a member of Congress have an obligation to be economically literate? The branch of economics Paul studies is the Austrian school—a branch of economics which long ago developed theories to explain how business cycles are distorted by central banks as they manipulate the money supply and interest rates.

Before this bear market is over, Ron Paul may be considered wise by many people; Ben Bernanke may be disgraced. My prediction implies a happy ending. Unfortunately, things are not that simple. A deep economic crisis produces wise men, but it also produces demagogues. People angry their dreams of something for nothing are not fulfilled will support demagogues. Those willing to change their “fixed patterns of thinking” will listen to solutions proposed by the wise. Our collective choice will determine the future of America.

Be Very Afraid

July 30, 2009

On Thursday, the stock market closed near a nine-month high and there is a growing feeling that the worst is behind us. Some of the same people who failed to predict the crisis in the first place now tell us it is safe to get back in the water.

“No one saw this financial crisis coming,” so say the mainstream press and politicians. Not true! Best-selling authors such as Robert Prechter, Martin Weiss, Jim Grant, and Bill Bonner all predicted, with startling accuracy, our current dire straits.

This fiction—that no one could have foreseen or did foresee our economic circumstances—has to be perpetuated by those who failed in their predictions. If it isn’t, many will ask the obvious question: Why are we still listening to the same individuals who have demonstrated that they are clueless?  And, they are clueless. They are clueless because they are looking through the wrong lens. Einstein put it succinctly: “Whether you can observe a thing depends upon the theory you use.”

Imagine a baseball team on which the starting players were incapable of doing anything but strikeout every time they’re at bat. Next, imagine the manager defending the players by saying, “No one can do any better,” as he conveniently ignores the players on his bench who can hit over .300.

Of course this is a silly scenario. Fans and sports writers would see the absurdity of such a manager’s actions. In any case, the baseball team has an incentive to put a winning club on the field.

Unfortunately, what is impossible to imagine in baseball is all too true in economics. Most fans (the public at large) are illiterate about economics. The media, as in totalitarian countries, are by and by content to repeat the “party line.” And, the management (the politicians) have an incentive to keep the system as it is.

Why would politicians keep in place a system that is destroying the economic vitality of this country? There are many reasons. A central one is that in the system as we have it, the Fed is able to create money out of thin air; the politicians need to keep that going because it is the only way to continue financing ruinous deficits. Whether or not the system is supposed to support that vitality and well-being of the American people doesn’t even seem to be a question. The message delivered by the politicians and chanted by their sycophants in the media is: “Bernanke, Geithner, and Summers are an economic dream team; we are lucky to have them.”

A dream team? In February 2006, Bernanke said, “Our expectation is that the decline in activity or the slowing in activity will be moderate; that house prices will probably continue to rise but not at the pace that they had been rising. So we expect the housing market to cool but not to change very sharply.” Lest you think I have selected one mistaken prediction out of many accurate ones, please spend five minutes listening to this YouTube compilation of Bernanke insisting over and over again that housing prices could not fall.

And speaking of housing, Nobel laureate Paul Krugman is often in the public limelight. Many in the general public shape their economic views around Krugman’s  New York Times blog and op-eds. Krugman, looking through his Keynesian lens, has repeatedly argued that the government, rather than spending too much, is not spending enough. In 2002, Krugman actually called for the Fed to create a housing bubble. He wrote in the New York Times:

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

And lest you think this was just temporary insanity on the part of Krugman, Mark Thornton at has complied Krugman’s repeated calls, beginning in 2001, for lower interest rates and for a speculative bubble. How sad that many Americans formulate their views based on the ongoing nonsense from Krugman.

Or, consider the repeated nonsense from CNBC commentators such as Jim Cramer. Here is one compilation of Cramer’s nonsensical forecasts.

It is hard to imagine how this shameless man keeps his platform. Yet, he has a bigger audience than most financial pundits.

Now, consider those analysts and forecasters whose predictions have been most accurate. Today they are saying that we are in the midst of a strong counter trend rally in a possibly catastrophic bear market. Enter these waters at your own financial risk!

Yves Lamoureux recently summed up the current rally saying with a Roadrunner/Wile E. Coyote metaphor:

In his pursuit of the Roadrunner, the obsessed coyote is at the wheel of a dragster. After a few passes on the desert roads, they venture up a mountain.  Drag racing to the top, the smart bird stops and lets the roaring Wile E continue on a rocket launch off the top of the mountain and into free space.

Lamoureux concludes, “Laws of gravity still applies, don’t be a Wile E. Coyote.” I write “be afraid”, rather than “be cautious” because caution will not be enough to keep you out of trouble, when the tide turns again.

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