The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

10 May 2010

The true objective of all that money

Okay, so "the European Union (EU) unveiled a staggering €750B ($966B) plan to save the eurozone from a debt contagion crisis. These funds include €440B in loans from eurozone nations, €60B from EU emergency funds, and €250B from the IMF. The money will be available to rescue eurozone countries that become financially distressed. Additionally, the ECB will take the step of buying government bonds, previously considered the "nuclear option" of the euro defense measures under consideration... AND the Federal Reserve has reopened a credit line to send dollars to Europe."

The guns are all out, and firing. The immediate result: initial reversals of last week's action. Equities rally globally.  Straying from predictions, we all should ask ourselves: Who or what does all this money target?
My reply: It rushes to bandage over the symptoms of the problem, but fails to solve the problem itself.

● The problem: profligate spending by everyone, but especially governments and paid for with debt, ever more debt.
● The symptom: careening debt and equity markets as investors increasingly recognize the con game.

So investors, especially those who recall September 1992, sell short government debt and equities in a huge game of chicken; in doing so, markets decline and havoc results. (Viz the headlines from last week.)  In essence, the EU targets this $1,000,000,00,000 ($1 trillion) against speculators. The true problems remain. And who believes those will be dealt with correctly, forthrightly, transparently?

We shall learn soon enough who recalls the larger lessons from September 1992.
-- David M Gordon / The Deipnosophist

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