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The Fed is Completely Insane


Munger
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In case anyone had any doubts, the curtain continues to be lifted on the Fed's intentions -- they are deliberately funding a ponzi scheme, artificially inflating all asset prices.  This will not end well.  These guys are completely out of their mind, playing God with our country based on pie in the sky theory.  Bernanke and his crew will literally deserve life in jail when this all comes apart -- the ultimate damage resulting from their actions will be enormous.

 

Straight for the horse's (actually, jackasses) mouth:

 

“Balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be,” Sack said in a speech in Newport Beach, California on Monday.

 

Anyone aggressively investing today is simply playing the game of greater fool...and when the music stops, there will be a lot of tears, gnashing of teeth, and ruined lives -- guaranteed.  

 

 

http://blogs.reuters.com/great-debate/2010/10/07/fed-is-banking-on-phony-wealth-effect/

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Good post here which lays out the thesis that Greenspan reflated assets after the Nasdaq bubble and it looks like Bernanke has the same reflation game plan.  A couple of great charts inside.  More monetary stimulus to the rescue (or not).

 

http://pragcap.com/did-the-consumer-ever-recover-from-the-nasdaq-bust

 

-O

 

In case anyone had any doubts, the curtain continues to be lifted on the Fed's intentions -- they are deliberately funding a ponzi scheme, artificially inflating all asset prices.  This will not end well.  These guys are completely out of their mind, playing God with our country based on an pie in the sky theory.  Bernanke and his crew will literally deserve life in jail time when this all comes apart -- the ultimate damage resulting from their actions will be enormous.

 

Straight for the horse's (actually, jackasses) mouth:

 

“Balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be,” Sack said in a speech in Newport Beach, California on Monday.

 

Anyone aggressively investing today is simply playing the game of greater fool...and when the music stops, there will be a lot of tears, gnashing of teeth, and ruined lives -- guaranteed. 

 

 

http://blogs.reuters.com/great-debate/2010/10/07/fed-is-banking-on-phony-wealth-effect/

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... Anyone aggressively investing today is simply playing the game of greater fool...and when the music stops, there will be a lot of tears, gnashing of teeth, and ruined lives -- guaranteed. 

 

http://blogs.reuters.com/great-debate/2010/10/07/fed-is-banking-on-phony-wealth-effect/

 

Munger - by aggressive, do you mean, make sure you have margin of safety, or are you arguing against investing large % of net worth in general? 

 

While reflation extends the pain, there are still some stocks (often discussed on this board) that remain fairly valued for investment, no?

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I honestly think the plan is joint world wide inflation. Leaves exchange rates in the same place and everyone reduces there debts. China will follow to keep their peg with the dollar. The middle class dont really notice, the rich dont really care because the assets are moving up, and debtors are bailed out.

 

I can understand where you are coming from but how does holding dollars help?

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Munger - by aggressive, do you mean, make sure you have margin of safety, or are you arguing against investing large % of net worth in general? 

 

Of course -- with sufficient margin of safety, buy hand over fist.  Although note that Munger once again emphasized in the Michigan Q&A that Berkshire is largely the product of 20 investment decisions.  Finding the right opportunities takes a tremendous amount of hard work and patience.

 

Leaves exchange rates in the same place and everyone reduces there debts. China will follow to keep their peg with the dollar. The middle class dont really notice, the rich dont really care because the assets are moving up, and debtors are bailed out.

 

You just described the fantasy world the Fed lives in...  Inflation ultimately destroys stock prices at best and society at worst.  And if inflation doesn't take hold, the Fed will have enabled a rise in debt to levels that can't ever be repaid -- see Japan.  Over the long term, there is no good outcome from the Fed's grand experiment. 

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So canned food & ammo?

I know this was a serious question, asking for a serious answer, but the sheer pithiness of it made me laugh. 

My somewhat unsatisfying answer to the accelerated currency devaluation problem is to supplement the high quality stocks with a little gold and silver hedging, painful as it is for a value investor to have bought at a high (not this high, but high enough). 

 

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What is going on right now is absolutely insane.

 

Treasuries are rallying because the economy is weak, people are starved for income and there is a belief that the Fed will keep buying treasuries via QE2 to push yields lower.

 

Gold is rallying because the USD is weaker due to the fear of QE2 on the dollar and the various currency wars that are brewing because of U.S. and now Japan actions.

 

Stocks are rallying because earnings are all right and QE2 is believed to help reflate the economy. Reaching for yield and returns is there too.

 

Everything that you are seeing is based on the belief of the power of QE2. When you look at the numbers, you start wondering if people are not making too much of it. For example, net issuance of treasuries is much much larger than current QE2 or what it is speculated to become after the next Fed meeting.

 

Then combine this with massive leverage to reach for returns and the use of carry trade and we have quite an explosive recipe. Oh, you think that leverage is a thing of the past at hedge funds following the credit crisis?

 

QE2 is truly an economic miracle. It makes all assets go up in price and someday maybe that it will help create a job or two. There is also no cost at all to it since Bernanke will somehow make the Fed balance sheet return to a low level with no impact when the time is right.

 

Cardboard

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What is going on right now is absolutely insane.

ABSOF***nLUTELY!!!

 

When you see the market go up if things are REALLLY BAD as opposed to not so bad because the Fed will easy do some type of stimulus act (how deep is that top hat anyway) is absolutely INSANE!!!!!!

 

Im just making popcorn!

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I wonder how much longer this can go on.  I am sitting on the side for the most part just waiting for the pieces to fall.  Somewhat lost in all of this is the drop in the US currency.  The Yen is now at the highest level vs the US dollar since 1995!!!  And somehow everyone is saying this trend will continue.  So what what makes the Yen so attractive?

 

I think Japan will be hit the hardest with these swings.  There was an interesting article on the far-right movement in Japan and how it could become mainstream.

 

http://www.theglobeandmail.com/news/world/asia-pacific/a-black-sun-rises-in-a-declining-japan/article1744434/

 

 

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