Jul 29 2007
Waiting to Exhale…
…A whole lot of liquidity.
Last week was ugly, but not unexpected. After what could just be the beginning of the long awaited market correction due to the unwinding credit bubble – we think the cavalry will ultimately come to the rescue. To be precise, a more modern cavalry. The kind that comes in helicopters – and drops a whole lot of money. While we wouldn’t be surprised to see the Dow drop to as low, or lower, than 12,000 – we are confident that “Helicopter Ben” Bernanke will fire up the engines. In the process the Dollar will be sacrificed.
Over the past several years, we’ve been writing about the dangerous effects, and false hopes, created by the massive expansion of liquidity. The average person couldn’t really explain why the price of their home (and portfolio) was going through the roof. Or why their grocery bill and the price of a cup of coffee steadily keeps rising. And why their paycheck, in general, just isn’t going as far. The reason obviously is one and the same. Simply, record levels of credit (much created out of thin air) injected into the economy is the culprit. Today, Americans (and the world) now begin to overtly learn the painful lesson that printing money does not create wealth. That an economy based predominantly on credit, will need more and more credit to keep it going. And that in the end – all this newly created money significantly (and steadily) dilutes the value of a currency – along with the hard earned savings of every investor. Like a junkie needing a bigger and bigger fix — the ending is often a sad one.
We don’t think the Fed will stand by and watch U.S. stock markets drop to zero. Nor will it sit by idly and watch the economy grind to a halt. If the upcoming weeks and months do in fact continue last week’s trend – the increased amount of liquidity could be dramatic. As could the decrease in the value of your dollar.
We’ll keep you posted!
