“Bush suspends capitalism; stocks soar.”
Pretty much.
Bonds beat a bloody retreat, but, who cares. (Not enough people, that’s who.) The bond market, thanks to its relative lack of volatility / reporting appeal / sexiness, is over the public’s head. Stock tickers have brighter colors and more jagged arrows, so they make better infotainment, which means they have a much stronger salience in the public mind than they deserve.
Much smarter people than me have given their verdicts on the Paulson bailout. I still have no clue what it means. To whatever extent this “freezes prices,” it will be approximately as stupid and shortsighted as Nixon’s price freeze in 1973. It will also probably break down with similar speed, as mortgage originators and MBS holders lay enough mines in the fine print to disqualify 95% of the would-be defaulters from qualifying for the “bailout.”
Fortunately, a switch in time saved my macro forecast from ignominious inaccuracy. Ever since I discovered the FHLB’s ballooning outstanding discount loans portfolio ($206 billion growth, and counting, this year. No, that’s not normal by any stretch of the imagination), it was obvious that the powers that be would trash the dollar to whatever extent necessary in order to keep the no-down no-doc Ninjas [*] off the streets. That includes Countrywide Financial Corp., a $6bn corporation which, as of September 30, 2007, is 51 billion munificent dollars in hock to Uncle Sam, and, by transitivity, Joe Taxpayer. Considering that the FHLB’s discount liabilities outstanding grew more than 10 percent in November alone, CFC is probably over $60bn in hock by now.
To paraphrase the boot camp tyrant from Full Metal Jacket, “Ain’t nothin but savers and debtors pay for nothin, and debtors sure as hell ain’t payin for this, so that don’t leave too much else left, now does it?”
So after I saw the difference in FHLB 2007 outstanding discount debt grow from $170bn ($328bn – $158bn) to $206bn in November alone, I knew the bailout/debasement engine was roaring and revised my medium-term forecast accordingly. So far, the goldbug crackpots have definitely been getting the better of the bond market. Whether Bernanke does the 25 or the 50 in the December meeting is not very relevant.
* Ninja n.: “No Income No Job nor Assets”
