Why The Stock Market Casino Is Dangerous: The Case Of Looney Tunes In the Sand Dunes... davidstockmanscontracorner/why-the-stock-market-casino-is-dangerous-the-case-of-looney-tunes-in-the-sand-dunes/ ...The pattern below would never occur in a honest free market. Nearly six straight years of continuous vertical lift just wouldn’t happen in a setting where the GDP of the underlying economy—US and Europe—-has grown virtually not at all since 2007 pre-crisis level, and where earnings are facing massive headwinds from global cooling, deflation and the heavy anchor of “peak debt”. But the worst of the market wrecking deformations attributable to Keynesian central banking is not simply the massive implicit subsidies to financial gamblers. Of even greater significance is the fact that no financial market can be healthy and balanced without an abundance of well-capitalized short-sellers. Yet the impact of financial repression has been the utter destruction of whatever short-sellers remained at the time of the financial crisis or their subsequent conversion to “blue pill” longs during the period since. That proposition was evident in spades in the case of EMES’ meteoric rise. At its late August peak market capitalization of $3.5 billion, it had sported LTM earnings of just $80 million. Yet it would not take more than 15 minutes of reflection to recognize that even those meager profits represented the whip-of-the-whip-of-the whip. That is, frenzied credit pumping and construction mania had driven the petroleum use rates of China and its supplier satellites to unsustainable peaks, causing crude oil prices to rebound from their post-crisis low of $35 per bbl. to $110. These credit bubble prices, in turn, had attracted an enormous flow of cheap debt and capital into high cost energy production—–most dramatically the US shale patch where production rose from less than 1.0 million bbls/day prior to the crisis to more than 4.5 million per day by last fall...
Posted on: Sun, 04 Jan 2015 19:07:44 +0000
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