It should be a wake up call to
the markets if, despite global monetary initiatives to the contrary, interest
rates accelerate their rise. While the
debates rage on about stimulus versus tightening, recent trends indicate that
the innate mechanisms of economics are at work, most notably the reversal of a
twenty eight year disinflationary cycle in asset valuations and interest rates.
While the hope is to create
jobs by freeing-up the cost of money, recent history indicates that the policy
itself is either uncertain at best, or a total failure at worst. So far the impact of global easing is to see
an increase in capital values
(stocks, commodities, interest rates) not a decrease, thereby making these
items less affordable to consumers. This
is quite a sobering impact upon emotions as well as pocketbooks. No
matter how hard our institutions try to manufacture strength out of weakness,
their machinations are thus far unable to influence immutable physics of
economics and market cycles.
Officially, federal treasuries
worldwide haven’t had sufficient time to evaluate these policies. By trying to make money inexpensive they hope
to move the needle forward. The effort
unfortunately looks more like pushing a boulder up a steep hill.
To make a further dent upon an
immovable obstruction, bond buying sprees and printing presses have been
implemented to “speed-up” the process.
Once again, not an inkling of success in creating jobs or stimulating
corporate expenditures. One might even
suggest the policies are having the opposite effect than what was
intended. Higher valuations in tangible
assets (food, oil,) are rendering many items too expensive to produce or
consume.
Another practical joke.
Some might suggest that rising
prices indicate an improving economy. I
might agree, except that in definitional economics demand drives prices and of course growing demand is a
pre-indicator of economic expansion. In today’s case, however, rising prices are preempting demand and making
expansion less likely. By putting
the cart before the horse our policy-makers have encouraged dissuasion and
dissatisfaction with our economic landscape.
My preference would be to see
debt levels diminished. The cause of our
recent bear cycle (2007) was an inordinate amount of debt and leverage
synthesized by a few in the hands of many.
Growth forecasts would be greatly upgraded if we could get expectations
and policy “in-synch,” and drive liquidity into the hands of those who might
confidently use it. Bankers might complain
that “it doesn’t work that way,” but
what way has it worked where the bulk of the money is currently aggregated by
tight-fisted corporations and greedy financial institutions? For the second consecutive year lending has
decreased, not grown, despite an ever larger pile of money in the pipeline.
Eating away at the market’s
capital gains potential is the erosion of confidence in our financial
institutions. The amount of wealth in
the hands of a few has increased to its largest value since the 1950’s. Unfortunately, that wealth has not trickled
down to the underclass, thus creating the widest divergence of have’s versus have nots in recorded
history.
Equity in transactional assets is not a right, it is a
hobby.
Whatever allows that hobby to be successful for some but unattainable
for others is an impediment to the fair-play provisions that should govern the
financial marketplace. So far, it
doesn’t look too fair or appealing enough to create a rally we all wish would
come.
Today’s Weekly Outlook is the last for
this year. The next publication will be
the Quarterly Overview,
dated January 1, 2011. Have a happy, healthy holiday season!!
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