MISERY LOVES COMPANY...bears of a feather

a few blogs ago i mentioned some of my favorite mentors. like they could hear my call, they both fed me with my weekly juice to keep me steadfast in my beliefs about the financial and geopolitical risks we face in our world and how over valued the stock market is. fleck quotes roach in his latest piece. get a load of this and tell me your ready to buy more stocks.

Sounding an alarm on global disequilibrium

The folly of that approach was articulated recently in a brilliant piece by Morgan Stanley’s Steve Roach, "Do Global Imbalances Matter?" I’d like to share some of it with readers. He has been one of the few people to understand the mania and its consequences. In other words, he's not your typical Wall Street hack economist. His discussion puts into perspective the risks assumed by folks who play beat the number with other people's money, and what they will ultimately face when the psychology changes:


"As the summer of 2003 winds down, the markets are going through a classic cyclical drill. Around the world, financial assets are being priced for recovery, renewed inflationary pressures, and central bank tightening. It's a scenario we've all been through before, time and time again. . . . It's times like this that test any macro practitioner. Resolve and discipline are one thing. But in this mark-to-market world of momentum investing, you can't afford to be wrong for long.

"While I am acutely sensitive to this feedback, I see little in the tea leaves that convinces me to abandon the basic framework that has guided my thinking over most of the past four years. As I continue to see it, the macro conundrum remains very much a tug-of-war between policy reflation and an extraordinary confluence of global imbalances. In the end, it boils down to whether the authorities have the wherewithal to spark a cyclical revival that offsets these excesses.

"There is always the issue of timing -- that fundamental imbalances are more of a distant concern that do not translate into a near-term macro call. While I have to concede that's always possible, I fear that the excesses have now gone to such extremes that vigorous growth in the global economy cannot be sustained. My bet is that today's imbalances are different. Believe me, I know full well that financial markets are now telling me that I'm dead wrong. In all my years in this business, I've never come across such a worrisome and potentially lethal confluence of imbalances. . . . "
He then goes on to cite these, most of which I have covered over time. Not surprisingly, I basically agree with his every word.

He sums up:

"Can policy traction 'paper over' the imbalances of a U.S.-centric world? This is where the rubber meets the road, as far as I am concerned. Reflationary policy initiatives are no substitute for global rebalancing. In the case of the United States, another burst of deficit-financed domestic demand will only exacerbate the excesses of debt, saving, and the current account. In the cases of Japan and Europe, competitive currency devaluation will only inhibit the very reforms that are needed to unshackle domestic demand.

"And, at the same time, politically inspired China-bashing can only threaten the global trade dynamic that now plays such an important role in driving world economic growth. That underscores the ultimate irony of the so-called reflation play -- that any policy-inspired rebound may well exacerbate the imbalances of the U.S.-centric world. Financial markets that bet on a quick and easy fix do so at considerable peril, in my view."
I agree completely. The risk/reward proposition is totally out of whack. While it may seem fun to bet on the upside for now, which may last a bit longer, after this party ends, it will be worse than when the bubble burst the first time. A lot worse.

don't you just love these guys. unashamed to be honest and bearish. as fleck agrees with roach, i agree with fleck and roach!

have a grateful day!

larry