Fear, Greed, Stupidity and a Trade for the Ages
April 8, 2013
“Three great forces rule the world: stupidity, fear and greed.”
Traditional Chinese Medicine recognizes the concept of two great opposing forces – the yin and yang. Not too surprisingly these are captured by opposites: male vs female, light vs dark, sun vs moon.
In modern finance the yin and yang could be considered to be the great two investment motivators: fear and greed. Consider my absolute wonder last Friday when a quick perusal of the day’s headlines finally recognized that both fear and greed have merged into the wonder trade for the ages – borrow short from the Fed, and lend long to the Treasury. According to the headlines in the popular press this is both incredibly lucrative, and absolutely safe.
Better still, this trade has such beneficial macro-economic impact that the Japanese have decided to double down on this bit of financial legerdemain, and have decided to double the profligacy of our own Federal reserve, and create money to buy bonds equal to 1% of GDP per month in the hope of stimulating real economic growth via currency debasement. Good luck with that.
“Haven Flows Push Treasury Prices to High for the Year”
“They babble about a bubble, but it’s not
Treasuries popular because they’re safer”
USA Today, 5/5/2013
“Japan starts monetary revolution,
All but scattering cash from a truck”
Financial Times, 4/5/2013
The minute that fear and greed merge, the great limits on insanity are eliminated – all that remains is the stupidity noted by Einstein. As in the case of the many debt crises of the immediate past, we are accelerating as we approach the edge – and it’s time for the whole world to play. Japan pushes the accelerator of monetary growth, all the while forgetting the hundreds of billions of dollars of worthless 100 year residential mortgages still resting comfortably on their financial institutions balance sheets.
When it comes to the high jinx of the world’s central banks, I think that the Great Emancipator had it right.
“You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.”
Abraham Lincoln, (attributed)
And I’m still mad that I never put on the one-way trade for the ages – remember it will work until it doesn’t.