Anent to my previous post and prominently displayed on this evening's CNBC Kudlow and Cramer was the same excerpt from Angell. The boys had Angell and Fleckenstein duking it out over the significance of lowering interest rates or leaving them unchanged. Angell thinks lowering generates liquidity. Fleck thinks lowering will have no consequence and can't stop the process of crushing out left over great expectations from the past. Anyone native to this thread knows why they are both wrong.
Angell made the usual argument from the pseudo academic angle that FED needs to manage better. Fleck countered that it didn't matter because FED already blew it when they presumably mismanaged during the '90s, a position which has had a lot of support on this thread. However, Fleck is just as wrong as FED and Angell.
No doubt FED inflated the balloon. I'm on record in SI back in Oct '98 and Oct '99 railing against AG's pumping to deflate imagined chimeras whether it was Asian or y2k. There still would have been a balloon and there still would have been a nasty sell-off, because the sell-off was related to the need to relax a 20 year economic expansion, the 'crat increasing of tax on capital, and the false notion that wealth can be got by swindle.
No doubt FED popped the balloon with a very mild tightening. It would have popped whether FED did that or not.
Fleck has the better position because it stands on American weakness and how it must be punished, by Americans. However, his conclusion was that the stock market has a long way to go on the down side while Angell disagreed. I happen to agree with Angell's conclusion which has nothing to do with his premises, barring something like, "all they are saying, is give Saddam a chance".
Angell makes the error that the FED must manage properly the demand side of the money equation, and Fleck makes the error that FED must manage properly the supply side of the money equation. FED is currently managing these sides in a way that's contrary to both of their expressed positions, but the ludicrous thing is that all three positions are wrong and all three views agree that there is only one right view: that the market should be the sole determinant of the cost of money.
The market for money has been abused for so long that no one knows where equilibrium between supply and demand for money lies. So no interest rate policy is right. FED basically has to abandon interest rate targeting so that the market can discover on its own a proper rate. Proper may be a fed funds rate of 5% or 0%. Once allowed to go wherever, true monetary policy, the creation and destruction of permanent, would have the desired result. It doesn't have that now.
Be that as it may FED has stopped creating permanent. This is extraordinarily bullish for stocks, but not over the short term. As long as FED doesn't create permanent everything has to find its true equilibrium. Given a lot corporations which have lived on disequilibrium for 50 years, that won't be resolved over night except in the case that the government significantly cuts capital gains. Since this is out of the question, it looks like I agree with Fleck too.
How can this be? Stealth bull market. The good companies will randomly walk upward and the bad, downward, and this action will persist in any nominal general trend. |
