Here We Are Again

The S&P 500 is flirting with 1,400 again. Believe it or not. The all-time high was 1565, in 2007. Prospects must be rosy. Yet the bond market begs to differ, with a 30-year yield of only 2.6% as I write. (Headed for less than 2%, IMO)

I’m going with the bond market. The basic reason is that government spending – support for consumption is reaching its limits around the world. Not only in the Eurozone, where it is obvious, but even in the US. Government spending is not likely to keep up with private deleveraging, leading to a negative credit impulse and a global recession.

President Obama says “the private sector is doing fine.” Not in this universe. To get back to pre-recession levels of employment, the US needs about 12 million jobs. The government sector is indulging itself in make-work programs that destroy economic value. The whole Keynesian fantasy of government spending as a free lunch is slowly being exposed as the scam that it is. The stock market has lost touch with reality because it is now a  playground for computer programs attacking one another, as amply demonstrated by the near-death of Knight Capital last week, tro say nothing of the Facebook fiasco, the BATS IPO and too many “flash crashes” to mention. This animation from Nanex via Reuters vividly shows the growth of high-frequency trading from 2007 through 2012. It is time to call a halt to this thievery.

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