Tuesday, June 16, 2009

I am a bear

I am not talking about my short term view on the markets, just my predisposition. In learning about financial markets and the current crisis, I have developed a monetarist view. The biggest factor in driving this crisis and many others has been monetary mass. Monetary mass has grown mainly driven by an ever expanding private debt supply. Securitization enabled by mortgage backed products to flood the market. Money as we know it is nothing but an IOU. If the debt supply increased, so did the money supply.

When that dissapeared the FED stepped in with QE, forgoing any illusion of value creation and just stated its mission: asset and consumer price uplifting in the name of systemic stability. We have the FED QE program to thank for the rally in commodities and the markets. We also have the FED QE program to thank for a VIX that has gone back down (volume on futures, indicating volatility as a proxy for panic or calm) because you can drown any noise by just lifting the base. In relative terms the noise you hear is going down. Forget all the noise you hear about markets and the economy, we are down to mathematical manipulation of the monetary supply in order to stabilize markets, it is manufactured inflation, nothing more, nothing less. But it is not news-worthy, it is in fact very boring, it is much more interesting to talk about the markets as a horse race.

I am a bear.

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