Gild the Farthing if You Will

日期:2013/06/05

Things Are Seldom What They Seem

Another bit of topsy turvy， a double negative， is the meme. It used to be that when the economy was weak， the stock market would go down and bonds would go up. Or when the economy was strong the stock market would go up and bonds go down. That's been the idea for at least five years. But now， when the economy is weak， the idea is that the Fed will continue buying weak assets of banks longer， so that stocks go up and bonds go down. When the economy is strong according to the latest random economic number， the idea is that the qe2 will not be prolonged， so the stocks do down and bonds go up.

This is a rather loathsome state of affairs that only Gilbert and Sullivan or Voltaire could have seen. It all stems from the abysmal buying of weak assets by the centrals. Okay. They've bought 2 trillion of assets. The bonds are down about 5 or 10%. That's means to me that 100 or 200 billion has been transferred from the portfolios of banks to the Fed， and this 150 billion has an opportunity cost. One opportunity cost is that instead of enhancing the colleagues and clients， it could have gone to the common man—- even in the form of lump sum payments or a reduction in， dare we say it—- no we don't.



Addendum:

What's the appropriate response to this topsy turvy. The old idea was crazy because when the economy is strong， then inflation is less by the quantity theory of money， mv = pt and t is higher. So bonds should go up not down. But this is even worse. The economy is strong， so stocks go down because the Good one will not buy the weak assets for as long as hoped. What's the world coming to. Which is appropriate. The Willie Sutton thing—- he wanted to turn himself in after Thomson hit the home run. The cricket thing， it ain't cricket. Or my squash opponent who would always say， "this isn't squash， mate" when I moved in to volley a few instead of waiting.