If Mr Market had a nickname, it might be "Twitchy!"
Our most unusal "recovery" seems to be based almost completely on
LEVERAGE!
NOT PENT UP DEMAND. NOT RENEWED TRADE. NOT PRODUCTIVITY.
Here's the problem:
IF THE RECOVERY IS TOTALLY BASED ON LEVERAGE, WHAT HAPPENS WHEN YOU
TAKE AWAY THE LEVERAGE? And, that's the 64 Billion Dollar question
this summer, isn't it?
IN EFFECT, IT'S THE EXTREME NATURE OF THE INTEREST RATE STIMULUS THAT
IS AT FAULT HERE;
OUR ECONOMIC "ZOMBIE" NEEDS A LOT OF "JUICE" TO KEEP MOVING! BUT
WHAT HAPPENS WHEN YOU KNOCK THE SUPPORTS OUT?
GREENSPAN'S "MIRACLE" OF BOOM WITHOUT BUST HAS BEEN A SHAM. OR, WILL
SOON BE FOUND OUT TO BE.
In truth, the American situation is a variation on the JAPAN DISEASE
of the 80's and 90's. The only thing that really boosted Japan was
the CHINA MIRACLE, where the world beat a path to China's door for
the cheap and docile coolie labor. (Those Communists are good "team
players!")
Indeed, now that China is going El-Busto, suddenly Japan is back in
it's funk.
Please note that when one Fed Gov when "dovish" last week the dollar
plunged.
So, Greenspan is LOCKED INTO a rate hike now, like a driver on
a one lane mountain road, the only reason to go forward is that the
fear of going backward is so much greater.
But consider:
Is the dollar really able to rally on a rate hike? Perhaps not!
The rate hike will be "bad for bonds" and that in turn could hit the
dollar.
The rate hike will be "bad for stocks" because it will act as a huge
MARGIN CALL on the CARRY TRADES. ALL OF THEM!
There might be some renewed attempt to fanagle the gold price, like
during the recent "bond crash."
INDEED, I THINK THAT JIGGERING GOLD MIGHT BE A BETTER WAY TO BOOST
THE DOLLAR THAN A RATE HIKE!
RATE HIKES ARE DEEP SURGERY IN THE ECONOMY. THE GOLD MARKET IS VERY
VERY SUPERFICIAL AND THINLY TRADED. AT LEAST NOW IT IS.
THE RATE HIKES MEAN BYE-BYE REFI. Or should I say good riddance?
The Tax Cut Fever seems to have "broke" in Congress. Indeed, the Tax
Fever also "broke" the US Treasury as well.
AND THE TWIN DEFICITS ARE REACHING GROTESQUE LEVELS, THAT FEW WILL BE
ABLE TO IGNORE, EVEN FOR THE SHORT TERM.
IN SHORT;
WHAT WE HAVE IS AN ECONOMIC "RARA AVIS"........
A RECOVERY BASED ALMOST TOTALLY ON LEVERAGING UP THE ECONOMY WITH
CHEAP MONEY AND UNPRECEDENTED LOW INTEREST RATES AND CARRY TRADES.
THE BIGGEST CARRY TRADE OF THEM ALL WAS THE CEO OPTIONS PACKAGES THAT
WERE "RESCUED" BY GREENSPAN'S CHEAP MONEY.
MAYBE THAT'S WHY THE INSIDERS HAVE BEEN SELLING THE "RECOVERY" FROM
DAY ONE!
MORE MACRO-MARKET UNPLEASANTNESS TO COME? To be sure,................so, stay tuned.
