With an ever decreasing supply of bearish realism, the massively unlevered ETF tracking the Rosenberg, Janjuah and Edwards trio is constantly increasing in value. And today SocGen's Albert Edwards goes for the 52 week high with the following pearl: "It’s almost as if the biggest credit bubble in history never occurred. Investors are increasingly convinced that a sustainable global recovery is emerging out of the wreckage. All praise to the central bankers (and Gordon Brown) for saving the world! I’m waiting till someone writes about the return of The Great Moderation and suggests Ben Bernanke is the new Maestro. Then I’ll know the lunatics have taken over the madhouse…..yet again!"
Indeed, the man, just like State Street, is recalling all the shorts:
When you look at the ever shrinking rate of bank lending to the private sector around the world it is clear as the nose on my face that the global economy is still very, very sick. As we have repeatedly highlighted, one key lesson from Japanese boom and bust is that banks are not the problem. Bankers? bonuses are not even the problem. The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion in a pathetic attempt to deflect blame from their own gross and unforgivable incompetence. It is the monetary and regulatory authorities that are responsible for this mess. It is not obvious in retrospect. It was obvious from the very start.
Of course, where would a realist be without some harsh words for the Maestro v2.0
The problem is that after the boom there will be a bust. The issue now is one of deleveraging and the deflation that is starting to unfold. The problem is that Bernanke is a slave to Milton Friedman?s view of the Great Depression (at Friedman?s 90th birthday Bernanke promised that the Fed would never allow another Great Depression to occur). The Australian economist Steve Keen?s observation that "Bernanke?s dilemma is that he is living in a Minskian world while perceiving it though Friedmanite eyes?" explains his actions to date. It also explains why he will fail.
And unless you have been living in a cave, deflation is precisely what keeps Meastro v2.0 up at night, and explains why a quadrillion in 3 Years is the new dot.com bubble. Yet aside from the commodity inflation which is driven purely by speculative forces (read China and Optiver), it appears that deflation is precisely what the US economy has in store for us, meaning that the excess liquidity so generously provided by our very own Federal Reserve will never end up making its way into consumer pockets but will likely buoy markets well on their way to a 2,000 S&P 500. Hopefully that last decile of US consumer ranks, which is the only one truly benefiting from this market move, will be able to resist the collapse of the middle class. Alas, if Edwards is right, don't hold your breath:
But it is collapsing core inflation that poses the greatest risk to the global economy going forward. We highlighted last week that core CPI inflation descends rapidly, with a lag, after the recession ends. If core US CPI inflation falls by around the 3% shown in the chart below over the next year, that will take the yoy rate to minus 1.5%! Hence the growth in nominal quantities (e.g. corporate revenues) is set to see disappointing ?lower highs? in this upturn after lower lows. And that, in our view, is just a prelude to a 2010 collapse into outright deflation.
And lest anyone reminds the equity rally that heaps momentum upon momentum every single day compliments of the Maestro v2.0's printing press, that bonds are now either massively gamed beyond recognition or are simply accounting for just this phenomenon, computers will be happy to keep running up on ever decreasing volume until just one share of SPY trades so high that the NYSE will have to come up with an infinity symbol for price just to keep track.