Massive market distortions

I've written here at TT about the distortions I believe to exist thanks to the Fed, QE, and Zirp .

Finally, somebody a lot more technical than I, has written essentially the technical equivalent of what I've written about from an intuitive perspective.

Here it is presented in slide format:

http://www.businessi...ncial-markets-1

You can mock the author at your own peril, as I recognize many of you have done so a number of times in the past. But what is presented makes tremendous sense, if you are willing suspend your own particular biases for a few moments.

I've written here at TT about the distortions I believe to exist thanks to the Fed, QE, and Zirp .

Finally, somebody a lot more technical than I, has written essentially the technical equivalent of what I've written about from an intuitive perspective.

Here it is presented in slide format:

http://www.businessi...ncial-markets-1

You can mock the author at your own peril, as I recognize many of you have done so a number of times in the past. But what is presented makes tremendous sense, if you are willing suspend your own particular biases for a few moments.

Hussman is very good at some things; other things not so much.

Yes, with the elusive appropriate lag period, market value is tied to corporate profits (CP), and Hussman has done excellent work to show that CP is primarily a function of non-federal and federal spending that can offset each other to good or ill effect. A good summary here showing how the business investment and exports components generally zero each other out leaving household spending/savings and govt spending/savings as the critical components -

http://www.advisorpe...sman_040813.php

He not only gets the basic Kalecki formula; his work has actually narrowed what you need to look at. I’m grateful.

Now if he would just leave the monetary side of it as being either ineffective and/or hysteria creation, he would be really with it. However, he just can't grasp something very very basic - the central govt, including the FED (or the ECB, the BOJ the BOE, or whatever currency turns you on) is NOT like any other entity USING that currency; it has a monopoly on that currency. They may choose, as in the US, to farm some of the machinations of that monopoly out to the banks (i.e. the primary dealers) but no one should confuse that with their NOT having the monopoly. No one should, as Hussman does, get hysterical about "bits and bytes on a computer spreadsheet having to be claimed by somebody" when those bits and bytes are bank reserves claimed by the FED and it primary dealers and used for internal scorekeeping and not having anything to do with the real economy.

That is a BIG distraction from Hussman’s right-on message of stocks tied to CP tied to household/govt spending - particularly when that spending is trending down as it is now. The FED-driven hysteria is at best a short-term influence on markets through the hysteria channel; at worse, it just gives folks who don't have a clue as to what is going-on a common enemy to whine to each other - it feels more somber and seriously insightful than just singing kumbaya, but it sure has cost them a lot of money if they actually followed that impulse in their trading.

agreed SB. insightful take on Hussman. the way i view it is, there is a lot to be learned from folks like hussman. sometimes people get too hung up on a man's market calls and "timing." and then they'll miss some valuable piece of information, because a possible bias they can have, purely based on hearsay, or very rough second hand information. on the otherhand, there are people who might be making some great market calls, tell you essentially nothing, other than to brag about their past. the only thing you learn from those folks is that they are prolific braggers, and self congratulators. they might throw out what they think is a bone here or there, but largely they are just too self absorbed, selfish, or just enjoy antagonizing folks. what i like about hussman, is he doesn't worry about others out there, does his own real and quantifiable work, and leaves the people bashing to others. maybe as a trader there might be something in what he says that can be of value. or maybe not. same thing with longer term players with longer horizons who rarely spend time trading, and have other day jobs where they make the bulk of their money. for some its just a "hobby" where they feel good about what they learn, and just enjoy the exciting nature of markets.