Real vs Artificial
We have Ecstasy..
We have a new year. The markets are euphoric and the first week of the year went gangbusters. Those who like to prognosticate the year based on the first few days and week are ecstatic. Noted investors like Jeremy Grantham and Ray Dalio basically note that the while the markets are pricey, there is more to come before they get too pricey. Even my favorite economist, Joseph Stiglitz is now changing his posture and saying 2018 looks to be a strong year.
Back to Real vs Artificial..
- First, I think most importantly, it is safe to say that economic events generated by artificial means end differently than economic events driven by market forces.
- We all know the exercise, Central Bankers around the world starting with Bernanke, bought debt to free up cash for growth and inflation and instead got speculation.
- The big story in 2018 is that the QE is now starting to be unwound. Granting that the amount of unwinding is not that great so far, the fact remains that the direction is set.
- People like me who have fought the whole QE exercise from the beginning, and have believed that fiscal infrastructure investments would have been the way to build an economic base, now see that Washington has tied its hand in terms of having the funding it could use for this initiative by giving away the money through tax changes.
So where are we now?
This all started artificially with the QE’s and it will end artificially with the demise of QE’s. So I would say to all those who are looking at all the market driven numbers, charts, euphoria, etc, there is something bigger in the background and it is just waiting for a trigger, of which we have many these days.