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Something weird happened in the stock market today.

Yesterday I blogged about the stock markets. I’d been up early to see what was going on in Europe and Asia. I was watching US futures, too.

I decided to write about what might happen. And I told you about Ben Hunt, my favorite economics writer. Ben combines remarkable knowledge of game theory and psychology with his genius in finance and economics.

I also declared the end of the Golden Era of Central Banker:

There’s good news in all this loss. First, stocks were overpriced. At some point, they will bottom out and it will be time to start buying. Second, the Golden Age of the Central Banker seems to be over. And that is very good news.

And I attributed the phrase “Golden Age of the Central Banker to Ben.

Well, today I was tickled to find a new note from Ben in my inbox. But Ben says my call on the Central Bankers is too early:

I see very little weakness in either the US growth story (best house in a bad neighborhood, mediocre growth but zero chance of recession) or the Narrative of Central Bank Omnipotence. Do I think that the Fed is being stymied in its desire to raise short rates in order to reload its monetary policy gun with conventional ammo? Yes, absolutely. Do I see a significant diminution in the overwhelming investor belief that the Fed and the ECB control market outcomes? No, I don’t. Trust me, I’m keeping my eyes peeled (see “When Does the Story Break?”), because in many respects this is the only question that matters. If this story breaks, then in the immortal words of Chief Brody when he first saw the shark, “You’re gonna need a bigger boat.”

(BTW, do yourself a favor and read When Does the Story Break? One of the best lessons in narrative and common knowledge ever.)

If Ben says the narrative of central bank omnipotence is unbroken, I believe him. And I read his warning of how ugly things will get when that story breaks, I shudder.

But based on the time Ben’s email hit my inbox, I’d say he wrote it–or edited it–this morning while the DJIA was up over 300 points. By the time I read it, the DJIA had closed down 205. It was biggest intraday rollercoaster since Lehman.

And then I read this on Business Insider:

By my reckoning, most investors already have little faith in the political leadership of many developed economies. But there has been a deep faith in the ability of monetary policy to both lift asset prices and, ultimately, generate an adequate inflation rate over the medium term. If investors start to doubt that – and the decline in break-even inflation rates suggests concern (Exhibit 8) – then things could get significantly worse.

And, from the same BI article:

The bull market is not over even if the unusual characteristic that was the powerful driver for price-to-earnings expansion is probably over, namely the power of zero rates and central bank/government ability to distort or manipulate the markets.

Look, Ben Hunt’s forgotten more about game theory and narratives and markets than I’ll ever know, so I’ll accept that the fat lady hasn’t sung the end of the Golden Era of the Central Banker.

But I hear somebody humming.

Insane: Stocks Markets Rally On Economic Disasters

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Eurozone’s economy is basically in recession.

Walmart lowered expectations. Again.

The world is teetering on the edge of World War.

The US is launching Iraq War 3.0: Mission Accomplished Accomplished.

Germany’s economy is flat, and Italy and France are getting worse.

Risk is high.

Corporate debt is staggering.

The Fed’s balance sheet is a sea of monetized debt.

The central banks have nothing left to fix another crash.

And the stock markets are rocketing to record highs because of all this news.

What the hell is wrong with people?


More good news for stocks and bad news for the rest of us since I printed this at 6:30 a.m.:

Jobless claims jumped by 21,000—the most in 3 months.

Import prices dropped 0.2 percent as European deflation comes to America.

And Putin calls for end of US Dollar as world’s reserve currency.

Perhaps the stock traders are sobering up, though, as US futures have gone from skyrocketing to flat.


Why Politics is Linked to the Stock Market

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Guest Post by Daphne Holmes.

There has been a lot of discussion recently, about how big business has too much influence on government. Of course, Democrat pundits are quick to point the finger at Republicans, accusing them of being in the pocket of big business, a charge that the Republicans also level at the Democrats.

If you look closely and objectively at how our government does whatever it is that it does, it becomes pretty obvious that both parties are well beyond being “in the pocket” of big business. The truth is, you’d be hard-pressed to find any area in which the political parties and big business aren’t one and the same. While the Republican Party’s stated platform is more closely aligned with the swelling movement demanding smaller government and less intrusion into our private lives, that platform has to a great extent become a philosophy rather than a consistent practice.

Let’s look at how the process works, oversimplified of course, in a few steps:

Stock prices drive legislation

Say the shareholders in Corporation “A” want to increase their dividends. The way to do this is to either tap an undeveloped market or increase the company’s share of an existing market. Right off the bat, the company discovers that there are government regulations in place that impede their efforts. Some of those regulations make perfect sense, such as those that make it illegal to sabotage a competitor.

Naturally, the company is under pressure from its investors to proceed with the expansion or product release. Since it will cost far less to donate to elected officials than to re-gear the expansion or abandon the product, the company hires lobbyists to “grease the wheels” by offering much-needed financial support to those elected officials in charge of regulating the company’s operations. The promise of a few hundred thousand (or a few million) dollars to a campaign fund goes a long way toward convincing a candidate to reconsider his or her position on a piece of legislation. Corporations large and small have come to view those contributions to be a normal cost of doing business.

Legislation is met with resistance

Special interest groups with unique agendas stage their own campaigns to impede expansion. Every possible rationale for halting the process comes into play, often appealing to the public’s emotions rather than good business practices, science, or common sense. These special interest groups find ways to appeal to those emotions, so their own funding continues to increase.

The end result is that we have extensive legislation and regulation drafted and passed, only to be challenged ad infinitum, rewritten, and then challenged again. The never-ending cycle, with moneyed interests on both sides, keeps the conflict alive with an increasingly complex mountain of laws and regulations. The more laws and regulations we have in place, the more our elected officials justify investigations, large staffs, and committees – all funded by the lobbies. In the end, stock prices fluctuate accordingly, thus perpetuating the cycle.

Who profits from this cycle?

  1. The businesses’ investors. To them, money spent on lobbying efforts and legally-rationalized bribes are a drop in the bucket compared to the billions they hope to earn from their companies’ ventures. So long as their profits and dividends remain high, they are happy to accept the cost of doing business.
  2. The lobbies that represent opposing factions. The lobby machine can be likened to the arms dealer who sells to both sides of a war. There is no incentive for the conflict in either theater to be resolved. On the contrary, so long as there is conflict, the lobbies are assured of making their money.
  3. The elected officials. They are able to remain in office and exercise their own power as long as there is some reason for them to take a stand. Ironically, our elected officials’ primary efforts are devoted to fighting against something, rather than working for a free and prosperous country.

Who loses?

The American people are the biggest losers in this game. With almost every new piece of legislation and new regulation, our freedoms are limited a little bit more. Elected officials could clean up the mess in a heartbeat, but there is no incentive for them to do so. On the contrary, they recognize that their own jobs and power could be in jeopardy if they decide not to play. As a result, change is slow in the relationship between politics and the stock market.

About the Author

Daphne Holmes contributed this guest post. She is a writer from and you can reach her at


That Hideous Rhythm

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I just blogged about the bad, sad events in St. Louis, Missouri, today. A 22-year-old police officer shot to death on duty; a famous, majestic church burned.

But looking around the internet, I find bad news all over. It was one of those days when the world’s rhythms crossed into bad vibes.

Some of those vibrations shook the earth in Peru, to the tune of 8.0 on the Richter scale, killing at least 850, probably more. Lives, homes, schools, livelihoods destroyed or changed beyond recognition. The

Rescue workers in Utah, trying to find the lost miners, became victims themselves a short time ago. There are reports of helicopters and ambulances rushing to the scene, but very few details have emerged.

In Pennsylvania, no stranger to mining accidents, another kind of tragedy. An 18-year-old boy fatally stabbed his 16-year-old girlfriend in her home, then walked out of the door, into her front yard, and slit his own throat.

The richest people on earth, meanwhile, spent much of the day feeling sorry for themselves because the stock market is in the throes of a normal correction. Listening to the news this afternoon, I nearly threw up. While lives came undone in Peru, Americans were nearly in tears because their portfolios lost 5 percent of their paper value. Bastards.

It’s the rhythms of the earth that are to blame. Not global warming or the Bush administration or even Jose Padilla. On days like these, we just hold on and hope we make it though to the next. Maybe spend a few more minutes than usual with the kids, reminded, as we are, that any moment with them could easily be our last.