|Is there reason to think the sun will rise?
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Dow down 24 yesterday.
And how do you like that [Fed governor] James Bullard? Stocks have barely begun to decline... the S&P has lost only 7.4% since its most recent high on Sept. 18th. And he's already preparing for QE 4. But where is the proof - from either logic or experience - that QE pays off?
It is a shame that quack philosophers, politicians, and central bankers are not subject to penalty. After all, bridge builders and hedge fund managers suffer shame and ruin when their projects fall to pieces. Couldn't some suitable stick be laid on world-improvers, too? Preferably before their whacky programs are put into service. For example, when they make a claim that cannot be supported by rigorous proof, they should lose a year's worth of income...or have their genitalia cut off. Maybe that would slow them down.
Yes, dear reader. Things are setting up pretty much as expected.
That is to say in a way that seems logically coherent, but is nevertheless incomprehensible.
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Liquidity is drying up. Volatility is returning. The leaves are falling. Investors are getting nervous. And Fed governors are promising more cash and credit, neither of which do they actually possess.
You'll recall that stocks fell when QE 1 and QE 2 ended. Why shouldn't they fall now that QE 3 is ending too? No doubt, they will. And that will set little feet running in predictable, but preposterous directions.
Bertrand Russell wrote his famous book in 1909. Called "The Problems of Philosophy," it raised questions about how we know things and how we can prove that anything we think we know is true.
Turns out, the universe is far more complex than our best philosophers can comprehend, (let alone Bertrand Russell) or our evolved language can describe, or our simpleminded logic can illustrate.
For example, you tell us that "all politicians always lie." We ask, 'how do you know?'
"I have it on good authority," you reply. "A senator told me."
Hmmm. Now, what do I know? Not much. The senator may be a good authority on the scoundrels of the US Senate, but he is disqualified as a source of honest opinion or observation.
Likewise, "although the sun has risen every day previously," wrote Russell, "we have no reason to expect the sun to rise tomorrow."
There, poor Bertie was mistaken. We have every reason to think it will rise. We just don't know for sure. This was the 'white swan' problem popularized a century later by Nassim Taleb.
Perhaps, every once in a very long while, the sun does not rise...white swans appear...and it's a new era. But we only bring this up to remind readers that it is usually the same old era. For now, the sun still appears on schedule. A kiss is still a kiss. And stock markets still go down as well as up.
That much we take for granted. Always has been that way. Always will be.
Still, there is something very new on this water planet: central bankers who think they can succeed where philosophers fail. Without explanation, they think they know where the Dow should be. Never before in the long, comic history of mankind and his money have bankers taken such a keen interest in asset prices. They now create money - out of nowhere - for the express purpose of pushing them up.
Should those prices fall - as they do naturally and episodically - you can be sure that some lunkhead like Bullard will be quick to roll out the firehoses. Bloomberg reports:
U.S. Stocks Erase Loss as Fed's Bullard Suggests More QE
Widely reported was that the Bullard comments gave the market "a shot of adrenaline." Said St. Louis money manager Chad Morganlander: "The overall markets are hooked on QE and liquidity is being withdrawn."
U.S. stocks recovered from an early plunge as St. Louis Federal Reserve Bank President James Bullard said policy makers should consider delaying the end of bond purchases to halt the decline in inflation expectations.
Adrenaline now. The hard drugs will come later. More highs. But more lows too. Monday...what happens when the Fed comes forward with more liquidity.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.
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