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Five Thousand Over Libor
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Energy trader with 11 years of experience in Natural Gas and Interest Rate markets. Manage a small trading organization, in the $25-50 million asset range, responsible for both consumption/production hedging and proprietary strategies.
  • The Earth has a Circumference; Please let Keynesianism Finally Die. 0 comments
    Nov 14, 2010 12:22 PM | about stocks: SPY, TBT, TBF, UBT, UST, PST

    On any given summer afternoon, in several instances along the tens-of-thousands of miles of oceanic shoreline that help to define the beauty of this country, you can find an 8 year old with a trident commanding the tides to his liking.  Dash away, dash away and then come hither tides.  His lack of empirical control no match for the power of his imagination. 

    It was difficult, then, two Wednesdays ago, to differentiate the action of the FOMC to this nation’s Neptune Auxiliary.

    Quantitative Easing 2, in and of itself, has exactly no chance of working.  The psyche of the commercial decision maker cannot be favorably distorted by the mirage; that’s why, in aggregate, they’re a successful commercial decision maker, they’ve thus far properly encountered mirages: on net, avoiding them.  You are one of two things in this economy: a saver or a borrower.  A saver engages the market until his risk aversions (forever present but out of the forefront until they aren’t) exceed his estimates for current return.  A borrower engages the markets until he can either no longer find opportunities that promise returns higher than their cost or can no longer convince others of his ability to successfully service a loan (all 3 of these things highly deflationary and currently quite evident). 

    Effortlessly adding a couple of zeros to the end of prime-dealers’ and big banks’ reserve accounts at the Fed, which are already fantastically-historically high (i.e. blowing previous records by multiples in the thousands), does exactly nothing to change this.  Pursuing the stoking of “animal spirits” is identical to seeding clouds.  Identical.  It shares several attributes with the infamous efforts in Salem, Massachusetts in 1692. 

    There is one element in every one of our lives and the lives of everyone that has ever lived, that has had a dominatingly perfect win-loss record.  Mother Nature.  Mother Nature always wins.  Always.  Attempting to circumnavigate her is categorically ill-fated.  You will lose.  This is why socialism is 0-X in history.  This is why every single piece of legislation has some element of unintended consequence. 

    Attempting to fully shape the consequences of the business cycle is the apogee of fool-hardiness.  We’re learning that now, as we encounter the brutal residuals of decades of active central banking.  Shakespearian then that we are setting new frontiers of audacity in attempting to fly the wingless plane that is active central banking.  This isn’t to say rigorous observation and the scientific understanding of the economy isn’t without distinct merit, it most certainly is.  But taking that understanding and using it to piss into the wind seems difficult to equally qualify. 

    You cannot control tides.  You cannot make horses drink.  You cannot usurp mother nature.  The world is round and Keynesianism is nothing more than ostensibly well-meaning adults nursing the fantasies often reserved for 8 year olds. 

    It is not better "to do something in the face of nothing", its best to allow consequence to roll as unimpeeded as possible to the original decision makers, send its signal (which is what its supposed to do), produce its lesson, and clear the market.  It's best to grow up. 



    Disclosure: No Positions in Tickers Tagged
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