First order of business is a general Mea Culpa for not posting in some time. The markets wait for no-one and this year has been incredibly interesting thus far as the Fed slouches closer and closer to capitulation.
I will avoid detail today - my missives on Bear Stearns are decidedly un-tasteful given the current straits of that once formidable Wall Street house.
So today I am going to talk about unintended consequences.
The great economist Hayek wrote extensively about this subject and elucidated the (misguided) policy formation process that regulatory agencies and governments utilize.
Instead, I will apply the "law" (I disagree that its a "law" in the scientific sense) of unintended consequences to the current status of the U.S. financial markets.
We are now in the age of financial weaponization. This, added to a completely misguided attempt by the Fed to (defacto) centrally plan the United States economy is actually causing volatility to rise.
This is all such a wonderful example of unintended consequences. Instead of bolstering the U.S. financial system, the actions from the Fed are being met with increasing amounts of frustration and skepticism. I still believe that Bernanke is attempting to counter deflating real estate asset (and financial asset) prices by inflating other asset sectors. The first difficulty with this approach is that inflation is not very discriminatory and goes where it wishes once unleashed.
But it also assumes that the Fed can engineer the consequences of its policy, and somehow knows how to do so. This is at best error and at worst incredibly arrogant.
So the Fed continues to obey its dual mandate of economic growth and guardian against inflation, and the tacit subsidization and blatant bail-outs of financial firms will continue for the time being.
Beyond my doctrinal objections to this chain of, one must take a pragmatic view and determine, within a reasonable degree of error, what causes opportunities may arise from this tumultuous time.