by David Stockman, David Stockman’s Contra Corner:
Another one of the Hedge Fund high rollers, Marc Lasry of Avenue Capital, recently confessed on bubblevision that 2200 on the S&P 500 doesn’t make sense to him, either.
But his reasoning went right to the crux of the bubble implosion lurking just ahead. According to Lasry, the market may be discounting a “stronger-than-expected” economic rebound and thus only appears to be ahead of itself:
The U.S. stock market, making a string of recent record highs, “doesn’t make much sense,” distressed debt specialist Marc Lasry told CNBC Monday, sharing the view of fellow billionaire investment titan Larry Fink.
“Everyone is a bit surprised,” said Lasry, co-founder of Avenue Capital, which has $11.3 billion of assets under management. “But the market is telling us what’s going to happen next year [or] the next two years.”
While questioning the advance in stocks, Lasry said on “Squawk Box” the market may be signaling a stronger-than-expected U.S. economy, with a growth rate somewhere in the 2 to 3 percent range….”
Ah, the hoary myth of a market that processes information, discovers price and discounts the future. Apparently, no one told Lasry what the bereavers for free markets and honest money had long ago confessed. To wit, “Mr. Market, we hardly knew ya”.
So the singular change in relevant information from the post-Brexit low has nothing to do with the outlook for economic growth or corporate profits; it’s just another excited rave in the casino after the latest batch of monetary cocaine—-helicopter money—-was passed all around.
But these revelers are going to need something stronger than the hope for “helicopter money” to avoid annihilation when the long-running central bank con job finally collapses. Indeed, that denouement lies directly ahead because helicopter money is a bridge too far.
As we demonstrated last week, there is really nothing to it except more of the same aggressive monetization of the public debt that has been going on for nearly two decades. That is, whether the central banks buy public debt from the inventories of the 23 prime dealers and other market speculators or directly from the US treasury makes no technical difference whatsoever.
The end state of “something for nothing” finance is the same in both cases. In fact, “helicopter money” is just a desperate scam emanating from the world’s tiny fraternity of central bankers who have walked the financial system to the brink, and are now trying to con the casino into believing they have one more magic rabbit to pull out of the hat.
They don’t. That’s because it takes two branches of the state to tango in the game of helicopter money. The unelected monetary central planners can run the digital printing presses at whim, and continuously “surprise” and gratify the casino gamblers with another unexpected batch of the monetary drugs.
That has been exactly the pattern of multiple rounds of QE and the unending invention of excuses to prolong ZIRP into its 90th month. The resulting rises in the stock averages, of course, were the result of fresh liquidity injections and the associated monetary high, not the discounting of new information about economics and profits.
By contrast, helicopter money requires the peoples’ elected representatives to play. That is, the Congress and White House must generate large incremental expansions of the fiscal deficit—so that the central bankers can buy it directly from the US treasury’s shelf, and then credit the government’s Fed accounts with credits conjured from thin air.
To be sure, the cynics would say—–no problem! When have politicians ever turned down an opportunity to borrow and spend themselves silly, and to than be applauded, not chastised, for the effort?
But that assumes we still have a functioning government and that today’s politicians have been 100% cured of their atavistic fears of the public debt.
Alas, what is going to cause helicopter money to be a giant dud—-at least in the US——is that neither of these conditions are extant.
Regardless of whether the November winner is Hillary or the Donald, there is one thing certain. There will be no functioning government come 2017. Washington will be the site of a political brawl of deafening and paralyzing aspect—–like none in modern US history, or ever.
At the same time, the existing budget deficit is already reversing, and will end the current year at more than $600 billion. That’s baked into the cake already based on the recent sharp slowdown in revenue collections, and means that the FY 2016 deficit will be one-third higher than last year’s $450 billion.
Moreover, when the new Congress convenes next February the forward budget projections will make a scary truth suddenly undeniable. That is, the nation is swiftly heading back toward trillion dollar annual deficits under existing policy and even before the impact of a serious recessionary decline.
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