Archive - Dec 29, 2010

The presented interactive chart from the WSJ tracks the intervention by global central banks in the monetary realm. It should come as no surprise that following the Lehman failure, virtually the entire world went from red (tight liquidity) to green (loose, and ostensibly for most, ZIRP). It is fairly safe to say that when it comes to America, ZIRP will stay forever, as the elimination of a -7% Taylor Rate equivalent offset to rates will annihilate capital markets of all shapes and sizes, which continue to levitate solely on free money promises and micro trading feedback loops. Incidentally, we are willing to immediately cede that there is indeed an economic recovery: all that would take is for Bernanke to stop QE2 immediately, and certify that no incremental forms of quantitative easing will occur. Let's see what happens to stocks, pardon, the economy, and naturally the wealth effect, following such a pronouncement. Another observation on the chart below: note the monetary reaction in the developed-developing world in the last year. This is only driven by the increasing unwillingness of the BRICs and their derivatives to import Bernanke's excess inflation. This is precisely what will be the defining topic of 2011 newsflow (together with Europe's further plunge into insolvency, and as always geopolitical news).

The market continues to putter along in the last trading week of a year that has thoroughly confused Money McBags like the subprime meltdown confused Ben Stein, the cosmological constant confused Einstein, or...