Gentle Parabolic Insanity

If the definition of insanity is making the same mistakes over and over again, then the capital markets are certafiably insane.

In the last decade, government, bankers and market participants have been eager to “create wealth”. And why not? The initial cost seemed cheap, the capital was plentiful and the plan worked like magic.

But right now the credit destruction that began in 2006 is reaching a critical stage, perhaps “the top of the ninth” to put it in a way you tobacco-chewing degenerates can understand. Hey, I think Dr. Fly is rubbing off on me! My new moustach is making me a mean Hombre`.

We are about to get some “ok” earnings announcements that reflect lowered expectation. The job market stabilized for the back to school time frame. But the recent past does not reflect the current reality. Like the march to the Iraq war during the recession of 1991, American’s are glued to their idiot boxes watching the latest musing from the highly intelligent folks who are running for higher office, and the media folk who cover them. The best of the best of the best, yessir.

We’ve had a multitude of Fed-Heads out over the past month promising the world, and the market has chosen to believe. No political hacks here! They’ve promised another Trillion or so dollars that will bring long-term yield to 1-2%, kinda like Japan. Like how the past is prologue, the remaining equity investors know that this one will be “balls to the wall”.

I was looking at a “bunch of things” that led me to the forecast that we are currently living,  and the world transpired to make our market forecast right. Not just on price (almost), but time as well. That is a rarity but has a lot to do with the calendar, dudes. It has certainly been a factor.

Don’t worry about the employment number. It is just another red herring. We’ve made it back to DOW 11k, much to the chagrin of “normal-thinking people”. The beat can go on for a little while longer, but what is coming will dwarf everything since the actual freeze in late 2008.

You know that the housing market is done. Finished. The only thing left is the elevator down. After that will be the tar and feathering of all bankers and bank Nationalization or perhaps just the forvigness of trillions, with the stroke of a pen. Then states will default on pensions and Washington won’t be able to bail them all out. It’s gonna get ugly and we may test the lows of 2009 sometime next year.

But out of the ashes will come a cleansing. Creative destruction at its finest for us American folks, who happen to live in the finest country in the world…The only problem with this forecast is that it is quickly becoming the overwhelming consensus. That won’t change the eventuality, but will change the timing.

So get ready for a new low for the dollar, the blow-off in commodities and equities and the plunge in yields. The endgame is in sight. Don’t be in a hurry to bet on the reversal just yet. But certainly be ready to step away from the minefield that will be awaiting.

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