A Change in Thinking

This is a little late today, but a confluence of events over the past two weeks is bringing together many pieces of my research from over the years.  It is difficult to know where to start but since we do talk about how economics and politics work together to influence market behavior maybe the first point should be that the stock market since April 2009 has been a trickle down reflationary trade based on the Fed/Gold hookup.  The market world is always enamored with bubble trades and Gold is the bubble that has formed since the other bubbles burst in 2008.  Some say that T-Bonds are in a bubble also, but they are little stuff compared to Gold. 

I like to cite Reagan and Greenspan as setting the atmosphere in which bubbles were nutured by supply side deficits and trickle down thinking. More in-depth reading however, makes me believe that the bubble mentality was hatched much earlier in this cycle, after our WWII victories.  We as a people believed we could do anything at that point and we felt we deserved it because we had killed the bad guys.  And that was good on many points, but as Eisenhower essentially said when he left office in 1960, watch out for those who have bigger ideas of running and exploiting your country going forward. 

I’m reading a new book “Barbarians of Wealth”. This is a rather lame book, but one with enough history going back to maybe 1100 AD to be interesting and provide a sense of place as to where we are now.  It has given me a better appreciation for what the plan was when Bretton Woods and the gold standard were scuttled in the 70’s.  The pieces that have fallen in place since the start of the current 72 year economic cycle which started in 1945 and will end in 2017 have been remarkable in their cohesiveness.  And as history shows when you look back for a thousand years, not really unique. 

I have told the story too many times, about how I was a Goldwater Republican in college and ended up as a Obama Democrat in 2006 with interim steps as a Howard Dean supporter.  I have always been pulled by the contrarian side of things yet know and have been intrigued and read all the books I can find that deal with the “Madness of Crowds”.  On Friday, Bill Clinton joining Obama made all my warning lights come on.  If there is someone in the Democratic Party who did the most to perpetuate our current problems it was Bill Clinton along with his buddy Robert Rubin. 

Obama and his appeal to hope and change was powerful.  His downfall has been to appear as a progressive and then surround himself with old line Clinton people and elite school technocrats, especially the economists.  Some good things came out of this, albeit watered down , the Health Care Program and Financial Reform.  As I said in my comments last week, no one in Washington has the guts to attack tough problems like the deficit and the Fed should stay out of the equation, it is a Fiscal issue.

So what is my change in thinking.  It revolves around who and what needs to be done to cleanout the mess that has built up since 1945.  It is obvious to me that what Obama and Clinton are pushing and which I outlined as a solution last Monday is wrong, it is a prescription for more of a gold bubble and a pushing back of the day of reckoning.  The tax cuts for the wealthy are the strongest signal since 1980 that the wheels are about to come off the train.  Trickle down does not work if you are concerned about deficits.  There may be new hope in Washington however, and from an unlikely source, the Tea Party, as symbolized by Ron Paul.  I am not surprised that I am being drawn to another contrarian, but I am surprised at the political direction this sends me.  Maybe if I had my fantasy choice I would vote for a coalition of Howard Dean, Russ Feingold, Dennis Kucinich, and Ron Paul to cleanup this situation.  What would one call that party of outside the box contrarians ?

This weekend a number of articles jumped onto my radar screen.  See here for a couple of them:



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