Saturday, October 20, 2012

HISTORY TENDS TO REPEAT ITSELF  Doug Noland's Credit Bubble Report 25th Anniversary (of the OCT 87 crash)

"The Nikkei ended 1989 at 38,916. The Nikkei closed Friday, some 23 years later, at 9,003."

"Especially after the ’87 Crash, the Federal Reserve and other regulators should have moved decisively to nip the derivatives boom in the bud, especially in the area of the dynamic hedging of myriad market risks. “Black Monday” provided unequivocal evidence of the serious flaws and dangers associated with the premise of “liquid and continuous” markets – an assumption that is really the foundation for contemporary derivative hedging strategies. Instead of the Crash destroying this market fallacy, the Fed’s day-after statement validated the view that derivative contracts could be written and risk-strategies pursued on the belief that policymakers would be there to counterbalance market illiquidity and neutralize “tail risks” and system shocks. "

"And the way I see it, the Fed, ECB and global central bankers today fight a losing battle. The mountain of global debt, securities, and derivatives, along with this destabilizing global pool of speculative finance, just inflate larger by the year – and after each policy response. "

My premise for this blog has and always will be to warn and educate.Some affable bobo's come by after each rally and proclaim how right they are, but after a market decline are noticeably quiet.

Each time there is a "CRISIS", the ECB and or the FED open the flood gates of liquidity, and easy money policy to "correct" the decline. All this has done is add more imbalances to an already overloaded unhealthy system that PUNISHED investment and  savings, and rewards speculation.

For 4 years now we have had a 0% interest rate policy, forcing MANY who otherwise would not do so, into RISK markets in search of yield. As long as there is a "greater fool" to pay higher prices this strategy will work in rewarding the risk taker. BUT at some point it will NO longer work and there will be nobody left to catch the falling knife.

After 2 horrendous BEAR MARKETS In the last 10 years, many would be investors have either left the market for good, or are still left in a state of shock even perhaps still holding their really there is little other strategy to take.

Where is it good, where variety isn't the spice of life, and choice taken away from investors limiting their options is the reality?

Current account debt keeps piling up at now over $16 TRILLION, this does not take into account some $50 T more in unfunded liabilities like medicaid and SS. WHAT politician is going to get elected or keep office telling the American people "Houston we have a problem" and somehow it will take the form of shared sacrifices and less opportunity for many years to come.

4 years of 0% FED funds rate, 3% 30 year mortgages and the Housing Market barely has a heartbeat, 25% of HOMEOWNERS are underwater in their mortgages. This is the FIRST recovery not to be led by housing, any wonder it doesn't feel like a recovery?

If printing money (digitally) was the answer and cure for all the ills, why would we EVER suffer an economic contraction and ever leave prosperity?

43 months of spectacular market gains have not led to historic recovery in housing, hiring, wages, investment ,spending and overall economic activity.

What feels like economic stability is more or less a mirage, being held up by FED POLICY and GOV'T spending and handouts. More Americans are receiving GOV'T assistance than ever if we had a true recovery would that be so?

That is life living under the specter of the ongoing credit bubble and its effects on our lives. AS Doug suggests, what has been growing in that aftermath of the bursting of the housing bubble is now a GOVERNMENT FINANCE BUBBLE....the "MOTHER" of all bubbles.

IS it possible that at some point, the US TREASURY auctions find few others takers than themselves or the FED?


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