Art Cashin Explains Why The Stock Market Is Broken, Shares More Perspectives On Hyperinflation
In today's interview with King World News, Art Cashin confirms that through its endless meddling, intervention and manipulation over the past two years, the Fed has essentially broken the market: "You used to have markets that were not particularly correlated. The asset classes now seem to be so heavily dominated and in inverse relationship to the dollar, and in direct relationship to the euro... It's frustrating having honed my skills over 50 years to be able to interpret news, and look at a piece of economic data, and try and outwit the rest of the world by figuring out how it would work, and now all you have to do is look and see how the dollar is reacting and know how everything else works. And that huge correlation is not good for people because if everything is correlated in a basket like that, it is very difficult for people to hedge and protect themselves, and therefore when assets move they tend to move altogether." In other words, step aside Value Investor Congress - meet Lack of Value Dollar Correlation Congress. But readers have known that for over three months. Just as they know that lately the biggest concern on Cashin's mind is hyperinflation "the difficulty is while you can get what appears to be nominal benefit out of [hyperinflation], when you try to convert to a hard asset, or even use it to try to buy a needed good, and the perfect example is Zimbabwe. If you were from out of space, and just could get the records of the Zimbabwe stock market you would say, "wow, they are having a pretty good time down there." But they are going up because the assets they hold are going higher and higher in a debased currency." And Cashin on his hyperinflationaty musings from earlier in the week: "My hope is that we don't get anything like that - hyperinflation would be destructive to civilization... But you are right, not only Zero Hedge, I think that was the most emailed comment that day all over the country." He may well be right. And he is certainly right about the Shazam moment: "Money only gets velocity when you lend it or spend it. The difficulty with studying things like the Weimar republic, is that the money supply growing drastically the initial reaction was small. There was very little doing, and it went slowly, until it went suddenly, and when it went suddenly, it went parabolic."
With $3+ trilion in excess reserves about to hit bank basements courtesy of QE2, the Fed will have to guard the biggest pent up demand of 'deferred' animal spirits in history. The biggest threat to the world will be not ongoing deflation at that point, but if the economy actually does pick up, and people start borrowing again! Then the money held in bank basemenets will flood the market, flood the streets, and hyperinflation will show up in a matter of seconds. And no, contrary to what Dudley and Sack believe, the cute IOER ploy will not work.
Once again, and we can not stress this enough, everyone should read this free copy of The Dying of Money (link) to understand just how serious our situation really is.