Given what Mr. Grant has just written, I can only ask: Did one of the world’s best known bears just ring the bell at the top of the great dead cat bounce?
http://theautomaticearth.blogspot.com/ There’s a theory that one way to tell when a market rally may end is to look at how many pessimists have turned optimist (it works in reverse as well). At the rally’s peak, many will have turned that would never be expected to. Investor Jim Grant is seen as a real bear, and he’s just turned bullish. Does that mean the really is over? Well, it’s not that simple of course, it’s just a theory after all, but it’s getting interesting. And there’s no doubt that markets often turn when just about everyone has started donning a party-hat first thing in the morning. The larger the herd is, the more it behaves like one.
Michael Panzner says this about Jim Grant’s “rebirth”, which sums up my reservations as well:
Jim Grant: Ringing the Bell at the Top?
Aside from discounting the fact that there are aspects to the current unraveling that are historically unique and extraordinarily unsettling (e.g., total credit market debt relative to gross domestic product is well beyond anything this country has ever witnessed), Mr. Grant makes a number of curious assertions.
For one thing, he assumes that the current downturn is near its nadir, instead of a temporary floor built on a massive stimulus injection and a knee-jerk bout of inventory restocking. Among logicians, such an analytical approach might be described as “begging the question.”
As you may have gathered by now, I’m way behind the curve on this one. I’m even still trying to figure out what on earth there is to be bullish about. Now, there is of course little or nothing rational about herd behavior. But those inside the herd will try to rationalize their way into their new-found position regardless, so let’s see if we can reason ourselves into some sense of it all.
Now the Fed and Treasury have thrown their last best assets–trillions of dollars in newly created money, new Treasury bonds and trillions more in guarantees–in a last-ditch offensive against debt/credit destruction.
They are also waging a relentless propaganda war on the American public, trying to convince them that the last decade of exponential-credit-expansion “prosperity” is sustainable. One of their chief weapons is the stock market “rally” which is being supported by their Financial Dictatorship allies in China, Japan and Europe, all of whom have similarly thrown their last best assets into the “final battle” for victory.
Thus global stock markets are moving upward in a manufactured perfect unison.
Beneath the screaming propaganda campaign declaring victory, the financial casualties mount: 5 million homes in the foreclosure pipeline, 16% unemployment, household wealth down a third, credit card write-offs are surging and not a single driver of future growth in sight….
Sorry, Financial Dictatorship: the weather has turned, and reality is preparing a counterattack on your magical thinking propaganda offensive. Reality is gathering its forces and your pathetic “charm offensive” will be revealed for what it is–blatant propaganda–within the next 12 months.
