Monday, February 21, 2011

Monday Newsreel for 02/21/11

The U.S. stock market is closed, so I need something to do.  Reading headlines is just the thing.

The IMF (i.e., the U.S.) is unable to help the EU solve its debt crisis.  The Fed is too preoccupied with buying U.S. sovereign debt to make any QE available for Europe.

Speaking of U.S. debt, there's more of it now than there has ever been since World War II.  Remember what FDR's Treasury Secretary said prior to WWII about how the New Deal did nothing but put the U.S. deeper in debt?  That was when the U.S. was still the world's largest creditor nation.  Now that we are the world's largest debtor, we have no spare room to launch any great projects. Growth won't save us this time.  Inflation is not a substitute for real growth. 

Speaking of inflation, China continues to fight it by raising fuel pricesThe rising price of oil due to Middle East turmoil will magnify the impact of this policy.  China's economy will hit the brakes faster than its Mandarins expect. 

Egypt wants the bond market to buy almost a billion dollars worth of debt.  They should send the bill to former President Mubarak.  He can easily cover it.  The new government is taking its first steps to locate the assets he grabbed.  Recovering all of the national wealth he stole will take some time, and of course even a corrupt former head of state is innocent until proven guilty.

Finally, U.S. investor behavior continues to defy common sense.  The stock market's dizzying rise does not deter new investors despite indications it is overvalued.  The U.S. economy's fundamentals have not improved at all since 2008.  The Fed's QE provides liquidity to the i-bank dealers of U.S. debt, who are emboldened in turn to extend credit to hedge funds that churn and pump the stock market to no end.  This cannot end well for investors when QE ends.