Almost every professional, and many lay investors know that the world’s financial system broke down in 2008 and the Central Banks of the world have attempted to transfer Bank Risk to their own Balance Sheet. But saving the banks from their epic and giant fuck ups will take more money than the world has, or could realistically print.On Saturday evening, Spain announced a Big Bailout. Lot’s of money promised but few details.
Just two weeks ago, markets began to fall in earnest after dripping lower for weeks and the pending failure of the European System was to blame. But then, mysteriously and out of the blue, markets had their best week of the year last week. Never mind volume was lower than during any other advance in this Central Bank controlled market. Obviously the Policy Response was leaked to people with Capital and they bought big.
But last weekends news has officially Jumped the Bailout Shark, meaning that it won’t help. You see, everyone expects that more Bailout Money will mean higher equity and commodity markets like after past “aid”. But after a certain point, maybe this point, it won’t mean that at all. Maybe it will mean just the opposite. I don’t know if we’ve hit that point, but it feels like it today.
The stated goal in the Free Money Regime is to buy confidence by boosting stock prices. Most investors now know that “boosted prices” are not justified or sustainable without solving the problems first. The way to do that is to make the debt disappear and dismantling the investment status quo. That will be a long and hard battle before we can rebuild. The fact is that the best performing issues are classically defensive says a lot about the current market.
Don’t get me wrong. I don’t want the world to end and I don’t want another Great Depression. But Bankers, Inside Traders with Friends in High Places, and the families of Chinese Party Members should not be the only beneficiaries of all this free money.