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The Sugar Rush

November 9, 2012

Yahoo Finance carried this story today, Why Stocks May Keep Falling (see link below). The story noted the following:

 A day after President Barack Obama stormed past Republican challenger Mitt Romney, the stock market sent a clear message: There’s still a lot more to do than win a campaign.

Market experts said a confluence of factors are poised to make for a difficult environment that could last well into 2013, which traditionally would be a slow year outside of all the present headwinds.

Theories abounded on why the market tumbled. They ranged from worries over the “fiscal cliff” of tax increases and spending cuts, as well as troubles in Europe, a slowdown in the U.S., and questions over the efficiency and effects of Federal Reserve policy.

As you might have guessed, I have a few of my own theories. For example, now that the distraction of the elections is over, perhaps we can once again turn our focus to the comedy we have made of monetary policy for the past four years. Maybe how the Fed is buying our nation’s own debt to permit debt to continue to hyper-accumulate will be justifiably questioned. (And, by the way, how long this can be sustained?) Or, Wall Street also may be wondering if the re-elected president noticed that they gave him huge sums of money, but gave his opponent larger sums of money, and whether there might not be some retribution. Or, maybe Mr. Market is trying to signal that the last QEternal is not enough to keep the sugar rush going and Mr. Bernanke needs to do something even bigger than QEternal, whatever that might be. Or, maybe investors noticed that one of Wall Street’s biggest critics, Elizabeth Warren, unseated incumbent Scott Brown for a coveted U.S. Senate seat. Or maybe Wall Street is wondering just how long they can continue to put lipstick on a pig. Any one of these could be reason enough for the market to drop.

It seems interesting to me that our investment complex is a house of cards, but somehow they never seem to blow over.

The financial market spin-masters have been cheerleading today’s news that consumer confidence has reached a five-year high. As I always say, it is when the masses are duped that you need to be most cautious. While the liquidity trap has been set, I have no idea when the trap gets triggered to snap, but it is likely to respond at the same velocity as a rat trap. However, instead of the “rats” getting trapped, it is likely to be the jolly consumers proudly displaying their latest purchases of made-in-China junk who end up flat on their backs, once again.

We are living on borrowed time, borrowed money and borrowed borrowing. The obvious solution to our problem is more borrowing!

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