ahaha: Long Term Capital Management epitomizes the point I made about theory versus the actual workings one finds when one gets down to the micro. Hedge funds are hedged, right? The human animal will give in to greed or, if not greed, expediency, either of which lead to mistakes that theory says will not happen.
Sure, the Fed can't afford a credit crunch. But what happens if a scared populous pulls in on consumption and saves that exploding money supply. Low rates and low-to-no growth. What if corporate managers conclude that there are excess risks and rein in capital spending? What if thousands of about to be laid off securities brokers, analysts, corp. fin. types and excess lawyers stop big time spending? The Fed can't afford a credit crunch but Western consumers could create the dreaded consumption decline by zipping up the purse and creating at least pockets of recession. Where would the export market be that is needed to pull Asia out of the mire?
What if the Japanese collective subconcious will decides it can't win the economic war through success, but by pulling down the US with it?
What if some bozo at a major money center bank has lost many billions, creating a domino panic among the big institutions? Remember, one guy named Nick (usta work with him at Capels) pulled down London's most prestigious merchant bank all by himself. I can tell you from working 30+ years in Wall Street that there are thousands of Nicks out there, playing out their own get-rick-quick schemes, that could be unraveling today.
There are too many exogenous variables that can blow theory - yours and mine - totally out of the water, including the very big world outside the USA and the Fed. Deflation/inflation? I think the only safe bet is that the world's financial mechanism is too shaky today to withstand much turmoil. We will likely be surprised by totally unexpected exogenous events and that few predictions will be very correct when the dust has settled.
RH |
