Long or Short Capital

Might there be a higher power than the Yellen?

Zambia will hold a day of prayer and fasting on Sunday, with bars shut and football matches cancelled, to seek divine help over the country’s currency collapse and dire economic woes.

Food prices have soared and crippling power shortages have also been triggered by low water-levels in Lake Kariba, where hydropower plants supply much of the country’s electricity.

“God is a god of miracles and if we ask him, he will bless us and the kwacha shall be restored to its former strength and the prices of goods shall again go down,’ Bishop Simon Chihana…told AFP.

Paid up subscriberholders know Zimbabwenomics has been revolutionizing economics and investing alike ever since humanitarian/economimst Robert Mugabe first launched the field. Every kleptocrat and savvy investor that heeded our related recommendations has gotten richer than Croesus. You’re welcome.

Well money never sleeps, and we’re totally money, so neither do we. We’ve spent the last several years traveling around the Dark Continent (Wikipedia describes the Dark Continent as “A phrase in declining usage to describe Africa” — I can’t imagine why that usage has been in decline, seems ok to me) to uncover a new strain of disruptive economics, Zambinomics. The new field is a natural iteration of Zimbabwenomics’ cornerstone, Mugabe Efficiency Theory:

Per MET, when supply is too dear, government fiat is needed to price it where demand can buy it. Problem solved, supply and demand clearly balanced and the cosmos is once again in order.

A Zambinomic approach would be that if supply is too dear, you pray to God and she makes supply cheaper. Or if your currency has too much flation, you get everyone together and pray the flation away. In Zambinomics, government fiat is superseded by the highest authority there is — God (or Gods or even the Flying Spaghetti Monster for all our Pastafarian readers).

Recommendation: Long gone will be the days of everyone hanging over all the cryptic gobbledygook that comes out of the mouths of Greenspans, Bernankes, and Yellens. In again will be the days of everyone hanging all over the cryptic gobbledygook that comes out of the mouths of virgins stoned out of their minds on cave gas. That is as it should be. Long ARG (NASDAQ: ARG) and all makers of cave gas.

I’d like to dedicate this post to Sage Kelly who said we should start writing more often. Sage, we heard you loud and clear 7 months ago and as you can see, we’re on it.

Something is going on in Cyprus. It’s been difficult for us to figure out the details due to the tough conditions: 15 years later we still can’t figure out how to use Bloomberg for anything other than financial AIM (we bloom dudes all day long); ever since Google murdered Google Reader (future murdered, if you’re being technical or pedantic, you bastard), we’ve forsaken all of Google’s products and services — as it turns out, the internet is basically useless without Google, especially since our fallback, Lycos, doesn’t work nearly as well as when we originally designed our internal disaster recovery redundancy redundancy plan.

We’ve had to use phones to talk to people (not in person, thank god) about the situation. Our determination: it’s “not good.” Especially for people that appreciate the service that banks provide wherein they hold your money for you, write it down on a list or whatever, and then give it back to you when you ask for it. This service that banks provide is known as “banking.”

As it turns out, this romanticized version of banking service was not how it always worked out. Sometimes there were panics or runs and you couldn’t get your money out. These panics used to happen from time to time, until most of civilization adopted deposit insurance schemes wherein a national government insures all depositors in a nation’s banks up to a certain amount. Deposit insurance is one reason why North Korea’s banking industry has been so stable the last decade; the other reason is that North Korea’s banking industry doesn’t exist (known in some circles as “Too Small To Fail,” research to follow).

Ok, so now this whole banking thing is fine, right? Panics hardly ever happen now, so no worries? Yes! But also, unfortunately, no. Because markets are weird and adaptive and respond to incentives, and regulations of various kinds have made it such that banks had (and have!) an asymmetrical relationship with risk AND incentives to do things like lend gobs of money at low rates to Greece because it’s “riskless.” In an unforeseeable “Grek” tragedy, these things have led to banking instability, one that deposit insurance can’t address.

But there is an even better way to ensure banking stability, even better than deposit insurance or banks not making terrible loans with no repercussions. Banks can simply take their depositors money. This is the most exciting Zimbabweconomic development since Zimbabwe itself pioneered even freer trade. So while the situation in Cyprus is “not good,” you could also say it could lead to something “really great.” Like this:

The core problem facing the world is banking instability. But right inside their own vaults and on their own electronic ledgers, these banks have the means to enhance their own stability. In Cyprus, they wimped out and deployed half measures by taking something like 40% or 50% of depositors’ deposits. Wouldn’t the banks, and in turns the world, be a lot more stable if they took 100% of depositors’ deposits? This would maximize banking stability and minimize banking instability’s impactfulness on bondholders. We’re not scientists, we’re economists, and this looks Mugabe Optimal to us.

Recommendation: We recommend that banks seize all of their depositors’ deposits. Be sure to call the act something harmless like “lollipops” or “haircuts” or “puppies”.

“The bank bestowed 100% puppies to all its fortunate, stability-loving customers.”

“I went into get my money from the bank and got a trim! I look great! Thanks, Banco Unioni di Cyprus.”

This seizure will be Mugabe Optimal according to the paper we won’t publish featuring the proof we didn’t do about the assumption-heavy autarky we modeled using the math we mostly made up.

Given the world’s likely move to a Mugabe Optimal banking state, Long or Short investors ought exercise caution when depositing money in anything called a “bank.” Safer places for your money include Dangerous Fund I, Dangerous Fund II, any mattress, any resource, any box, any location in your house either hidden or in the open, on your person, hanging out of your pants pocket, pre-buying with your drug dealer, a stripper’s g-string, diamonds, real estate in Zimbabwe, a vanity license plate for your mega-yacht, a vanity license plate for your deep-sea submersible vehicle (the new mega yacht, research to follow), a tar pit, that thing from Star Wars that ate Boba Fett, etc.

We admit that we doubted the zimbabweconomists who said “this will work, trust us, we’ve never been wrong theoretically,” but the wealth effect is working. We feel GREAT. More importantly, we feel rich. So much so that we are using a new word to describe our riches — wealth. And all that wealth burning a hole in our pocket? What’s a mini-baller to do? Spend spend spend spend spend. We are spending 5x more than we normally would thanks to our new permanently elevated levels of riches, our new so-called wealth. And that spending has beget job creation in the economy. Last week, feeling flush with nouveau wealth, I personally spent $40k to buy windows and $10k to hire homeless people to break those windows in a sort of informal mad-dash shopping-for-dollars-cum-breaking-windows competition. It was inspirational. This actually works — unemployment has never been lower according to current theory I think. The economy is growing at record levels (depending only on how you define these words: “economy,” “growing,” “record,” and “is”).

This wealth effect has radically changed how we evaluate investment opportunities. Never in my life would I have considered buying a CCC junk bond at 110 to yield 7% (quick ratings guide: BBB = investment grade, BB = fine company, B = either a fine or a sketchy company the ratings agencies have no clue which, CCC = this will default just give it a few years, D = this defaulted like we said when we rated it BB uhhhh we’re not good at this). Today? Shit, I’ll take it at a 6% yield. I mean my alternative is earning 0% on basically everything else. Plus I feel wealthy, isn’t this what wealth affected people do? Buy dumb shit?

The universe of potential investments has never looked larger. Anything that hasn’t had all the yield squeezed out of it is acceptable. And we do mean anything. Do you have any CLOs made out of REITs on offer (in all seriousness that doesn’t sound half bad)? Does Hollywood need any money to help make Mystery Men 2? Just send me whatever form I need to fill in, my permanent wealth is in.

Recommendation: Don’t hate the theory, hate the game. Long the Wealth Effect.

People mistakenly assume that Zimbabwenomics is just about Mugabe Efficiency Theory and making supply cheap enough for demand to afford it, thus creating a Mugabe Optimal state. But the field has a lot more to offer whether it be by finding ways to make everyone a millionaire or to win elections you actually lost. Now that the mantle of Zimbabwenomic leadership resides in the US, we are seeing new applications of classic theories as the recent Affaire D’AIG (NYSE: AIG) demonstrated.

When the US was busy trying to rush the passing of a $700bn “stimulus” bill along party lines while selling to the public the fact that the world would end if it wasn’t passed, many wondered how the largest piece of non-budget Government spending in history could go through in a few days with little to no scrutiny. It was unpatriotic to question it or to ask for a time-out, which is exactly what I told my wife when I left work to buy our second mega-yacht (now repossessed) a few years ago.

The solution that the US executive and legislative branches discovered was on a page straight out of Mugabe’s Zimbabwenomic Text Book — fan the flames of populist rage against a rich minority target. Even better, a rich minority target who has nothing to do with the proposed legislation and, at best, represent an infinitesimal fraction of the greater concern. Facing (erroneous) allegations that his vision for Zimbabwe wasn’t working, Mugabe adopted a program of land reform and property reform which pushed out wealthy white farmers and south Asian businessmen. Zimbabewe grew its productivity by alienating (often physically) the rich elite, while its Government continued doing what it had been doing so well, as can be seen in Exhibit A.

In the US, the Government has fanned the flames of populist rage towards $160 million given to certain AIG executives under the terms of their contracts (which we are not privy to and thus cannot ascertain the validity of). At the same time, the stimulus bill calls for the spending of $600 million every day for the next 3 years and has received much less scrutiny, despite the fact that it is historically the single most massive transfer of wealth from the future into the current. Pure genius and we only hope the result to the productivity in the US will be as great as in Zimbabwe.

Recommendation: All things in proportion.

The next target of excessive compensation focus should be congress whose members have each made millions over the last four years, while being responsible for almost taking down the whole financial system. Out of greed and a lust for power, they recklessly misregulated industries and securities of which they had no understanding; the same politicians and officials who got us into this mess continue to take down salaries and overall compensation which is greater than 99% of the country. I’d like to see their contracts, I’d like to take a look at every legal way to stop the payments that are continually made to them by taxpayers, I’d like an excise tax of 95% levied against the salaries of senators and representatives to the extent those salaries exceed the minimum wage. If they had any pride or sense of responsibility, they would refuse their compensation or give it back.

After Zimbabwe had been bearing the torch of sensible solutions to incredibly complex resource allocation issues for many years, it appears that the forces of dark may be prevailing in the country. The government is abandoning their full support of the Zimbabwean dollar.

“The Government is allowing the use of multiple foreign currencies for business alongside the Zimbabwean dollar,” Patrick Chinamasa, the acting Finance Minister, announced in [an unsettling] admission that the Mugabe’s regime’s battle to prop up the national currency [was being submarined by the forces of darkness and also by impotent cowards].

This is troubling news in a troubling age. But mollifying the trouble is the fact that leadership in both Zimbabwenomics and Mugabe Efficiency Theory has migrated to America. This leadership has been affirmed almost every week since early 2008, as our economic leaders craft new and powerful ways to harness zimbabwenomics to make America into the great nation it used to be, back when we made things rather than just how it is now when we all we make is money and an incredible standard of living, back in the good old days when we killed Indians, and had black lung and union riots that stopped the economy and killed people, and much higher violent crime rates, and much shorter lives, and much less education, and less social mobility, and more racism and no pizza.

Recommendation: Long the Zimbabwean dollar — it is only a matter of time before the US adopts not just the ideology of zimbabwenomics, but the official currency as well.

Zimbabwenomic forces are following up last year’s smashing success in banning short-selling in certain financial firms with new legislation aimed at effectively scrapping the entire CDS market.

House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The document, distributed by e-mail by the committee staff in Washington, would also force U.S. trading in the $684 trillion over-the-counter derivatives market to be processed by a clearinghouse.

It’s about time that someone put together a way to stop the CDS market cold in its tracks. The instrument’s ability to provide hedging for companies’ debt, improved liquidity in names, and more accurate information about the health of issuers is not only dangerous, but it’s overtly capitalistic (they might as well be called Credit Default Ronald Reagans), which we now know to be a mistake. A healthy economy doesn’t need an unfettered free market system — what it needs is a regulated command economy that ensures that houses (and everything else) are always affordable, especially for people that can’t afford them and that politicians are always in control of all economic and financial processess.

This particular zimbabwenomic reform comes from the chairman of one the most progressive committees in the house, and hopefully he and fellow zimbabwenomicist Barney Frank can push forward appropriate regulation of all markets, specifically, regulation that will prevent them from going down.

As much as 80 percent of the credit-default swap market is traded by investors who don’t own the underlying bonds, according to Eric Dinallo, superintendent of the New York Department of Insurance. Dinallo last year proposed outlawing so-called “naked” credit-default swap trading. He shelved the proposal in November because of progress by federal regulators on broader oversight of the market.

More generally, we think one of the effects of the Great Regression will be that everything naked will take a hit. Naked trading, naked shorting, naked greed, naked people and naked CDS positions were the excesses that got us into this mess. The lesson? We, as a society, need to do it with our clothes on, whatever “it” is.

Recommendation: We recommend an unhedged short on naked trading, naked shorting, and naked CDS positions, basically anything naked. Putting clothes on all such actions ensures that nothing is able to go down. Now is a perfect time to bone up on dry humping in expectation of the new regulatory paradigm.

Zimbabwenomics is mainly a field of economic study, but that doesn’t meant its guiding principles can’t be pragmatically applied to create solutions for any problem (note: if there is no problem, Zimbabwenomics can utilized in creating one). Robert Mugabe was facing a difficult re-election as president of Zimbabwe in the elections earlier this year, one that had seen tension, vitriol and internecine tribal conflict on a scale almost matching that of the US Democratic Primaries. But Mugabe understood a fundamental concept that his opposition and international haters failed to grasp, namely the inherent advantageous position that a Zimbabwenomic analysis of his candidacy revealed.

Under normal political analysis, there are two result paths from an election, only one of which is victory:

1. Win the election
2. Lose the election

From a Zimbabwenomic perspective, there are also two result paths from an election, the difference being that BOTH lead to victory:

1. Win the election
2. Lose the election, but actually win the election, because your opponent pulls out

Recommendation: Readers familiar with Zimbabwenomics knew from the outset of the elections that Mugabe retaining his position was a fait d’accompli. Long the Pullout Method of Dictatorship Retention.

Politicians are generally great at what they do. We know that. It’s a group that self-selects for blowhards and megalomaniacs with a thorough understanding of Zimbabwenomics. And certainly, Massachusetts politicians typify these tendencies. But even by the Mugabian standards of politics, things are getting out of control (in a good way).

[Barney] Frank’s idea is that, for mortgages originated between the start of 2005 and mid-2007, a lender and borrower would be able to agree on a federal refinancing plan. Lenders would have to write down their loan to no more than 85% of the current appraised value of the property – which means the banks will use this opportunity to unload the biggest stinkers in their loan portfolios.

For the borrower, the deal is even sweeter: a low fixed monthly payment and a reduction in the principal to market value. The Federal Housing Administration would then guarantee the loan, up to a total of $300 billion in total Frank Refis. The deal is so sweet that even Mr. Frank is concerned that otherwise reliable borrowers may “purposely default” to be eligible for assistance.

Just to be clear, what Mr. Frank is proposing is to bail out anyone who took risk on a house they couldn’t afford. Many of these people will have, smartly, put little to no money down to take that risk and benefit from the potential upside were the house to appreciate. How is he planning to finance this proposal? Taxes, of course. So those who dumbly did not take risks with large potential upside will now pay those who did. This is an extremely Mugabe efficient proposal and will be a resounding success with no downside.

Recommendation: Long excessive risk-taking, just make sure to do it in a group large enough to form a voting bloc. Also, I have found that Zimbabwenomics is much funnier when it is not happening in my country.

Lots of potential investors have been inquiring about our take on the Zimbabwean elections which occurred over the weekend and indicate that Mugabe and his party, ZANU-PF, have lost the election to control the breadbasket of Africa, Zimbabwe. Some people seem to think that this means that it is al over for Mugabe and his reign of economic progressiveness with his policy of Zimbabwenomics. Some people seem like they need to get more familiar with Zimbabwenomics and its underlying principles.

• Fact: On a nominal vote basis ZANU-PF lost the parliamentary elections.
  Reality: When you adjust the votes to account for the real rate of tyranny, you see that ZANU-PF won by a significant majority, a veritable tyrannical mandate
• Fact: The elections are over.
  Reality: When you again account for the real rate of tyranny, you’ll see that the elections not only are not over, but they may not have actually taken place to begin with. Reality exists, but only so long as Mugabe permits it.

Recommendation: If Mugabe is living, he is ruling, and since Mugabe recently decided to enact legislation that legally ensures that Mugabe will live forever, Mugabe will in fact live forever. Zimbabwenomics forever.

Zimbabwe continues to get it. When facing simple, but large, macro problems, the country shines like no other. The biggest problem with with supply and demand is that sometimes the demand cannot afford the supply. Zimbabwenomical solution? Enact policies consistent with Mugabe Efficiency Theory which lower the price of supply to make it affordable. The country is faced with rampant poverty and lack of wealth. Zimbabwenomical solution? Mugabe has taken it upon himself to make the entire country full of millionaires, an unprecedented accomplishment, not only in Africa but in the whole world. From a CNN article on the Zimbabwean dollar

Money traders in [the] African country say the Zimbabwe currency has [surged] to a record [of] 25 million for a single U.S. dollar.

It’s a race between the US and Zimbabwe, one the latter is clearly, and as a US citizen disappointingly, winning.

Later in the same piece we spotted evidence of another advance in the field of Zimbabwenomics:

[The] regional breadbasket [imports] canned and processed foods, household goods, soap, toothpaste, toiletries and other items [from] neighbors Malawi, South Africa and Zambia and from as far afield as Egypt, Germany, Iran and Malaysia.

Zimbabwe is not only reaping the benefits of trade by engaging in a diverse set of trading partners, but it’s taken a figment of its own imagination, and profited from it, by trading with a fictional country in Malawi. Zimbabwe’s move is particularly bold in that Malawi doesn’t even sound like a real country, more like someone with an oversized tongue trying to say “mara, way!”. The key benefit to trading with a fictional country is that you control the terms and have all the leverage because, in order to continue to exist, they are dependent on you believing that they exist. This is why the US is able to extract such generous terms in its trade with Canada.

Recommendation: Zimbabwe is on the very cutting edge of progressive thinking; we would buy the whole country if we could. Actually, according to our trader, apparently we now can. Amazing.

On February 23rd, Long or Short Capital released this statement.

Good morning. Stakeholders who have read our reseach piece on Mugabe Efficieny Theory know that Zimbabwe is the most progressive country in the world economically. Already, the ideas developed by Mugabe and contained with Zimbabwenomics have been adopted in Kazakhstan and by John McCain.

Well, when a Zimbabwean-based advertising opportunity arose, Long or Short’s interest was aroused. We are pleased to announce that we have purchased real estate on The Million Zimbabwean Dollar Homepage. We think, like most things Zimbabwean, the fundamentals of the Million Zimbawean Dollar Homepage suggest unfettered growth. We expect our stakeholders will benefit from the remunerative effects of this powerful investment in our own traffic. You’re welcome.

We look forward to updating our readers on recent financial results and our calendrical reporting shift in the next few weeks. Good day, sirs.

Mugabe is only growing stronger in the world, his discorporated Zimbabwenomic-self is popping up on the very edge of dynamic economic policies. Kazakhstan has announced it will buy publicly listed Kazakh bank stocks until prices return to their normal price (in this case, “normal” should be read as “all time peak”):

Kazakhstan will respond to an “attack” by hedge funds by buying shares next week in the country’s banks that are listed on foreign exchanges to support prices, its prime minister said,

“Kazakhstan is under attack from hedge funds and we will fight back,” Karim Masimov said, after president Nursultan Nazarbayev complained the country was suffering from “unfounded” downgrades of its credit ratings.

…

The government said it would buy stock of banks until prices reach “pre-August levels” and will do the same for non-banking stocks “if warranted”. The state was also prepared to lend $4bn (£2bn) to banks to ensure liquidity, he said.

Kazakh banks have been hit by the ripples from the US sub-prime crisis. Kazkommertsbannk, Alliance and Halyk Savings Bank are all listed in London. Many banks in the country have also been hurt by an outflow of deposits and waning confidence in the national currency, the tenge. In August, banks suffered “massive withdrawals”.

Recommendation: The Borat mania caused us to be short everything Kazakh, but since then K-Stan has been flying totally under the radar. The implications of a Mugabe-style explicit government put on Kazakh stocks, leads to our valuation models predicting a price for any Kazakh bank stock of X+1, where X is the current market price. We rate Kazakh bank stocks as a “Strong Buy Indeed” because prices, per our valuation model, can only go higher.

In a post a few months ago, we outlined the power of Zimbabwenomics, as outlined by economic genius Robert Mugabe in his Mugabe Efficiency Theory. A gap in his theory noted by none of you, is that he does not explicitly address interest rates. Luckily, John McCain, has been working to plug this gap. Per Matthew Yglesias writing on last night’s Republican Presidential Debate:

John McCain on monetary policy: “I’m glad whenever they cut interest rates, I wish interest rates were zero.”

Recommendation: This stance dovetails well with Mugabe Efficiency Theory and extends the “if you make things more affordable, people will buy more” rationale to interest rates. If interest rates are zero, assets will only continue to increase in value because they are more affordable and thus there will be more demand for them, making them worth more. This much is obvious and there is no downside to a zero interest rate policy. But why stop at zero? Negative interest rates would make things even MORE affordable. We look to negative interest rates as the next frontier of Zimbabwenomics.

To: The Fed
From: Long or Short Capital
Re: You suck

Dear the Fed,

You suck. You don’t have a backbone and as a result you are slowly and very surely making our country and our currency irrelevant. Usually the masses rebel and bring down great empires but luckily for us democracy fixed that problem. Unfortunately, democracy can’t fix how lame and fickle you are and so you will be our ruin.

A few things to tell you:

1) Inflation isn’t 2% like your pathetic CPI ex-Food & Energy says it is.

First of all, as far as I can tell food and energy are the only two items you should NEVER exclude from an inflation index. Tell your wife and kids they can have everything in the consumer basket except food and energy and you will quickly see that they are actually the two MOST important and indispensable factors in the CPI. You can find substitutes for, or go without, everything in the basket EXCEPT those two.

Secondly, stop using “Seasonally Adjusted Intervention Analysis” it’s as sketchy as the Seldom-Accepted-Accounting-Principles (SAAP) we use to cook the books here at LoS. I mean writing a computer program to automatically remove any items in the basket which deviate meaningfully from the previous year? Isn’t the point of the data to SHOW the change versus the previous year not hide it? Oh, I found the list of items that you’ve adjusted for and it’s embarrassing.

The majority of adjustments remove price increases with much less frequent adjustments for price declines. You’ve basically left dairy products out of the index for the last 5 years citing outrageous one-offs like “a generally tight cheese market” as justification for this. And as if reporting a separate ex-energy index wasn’t enough you’ve statistically intervened to remove the effect of higher energy prices even in the index that’s supposed to INCLUDE energy. In one outrageous case you removed the effect of fuel oil for three months in March 03 and the reason you cited for the “abnormal” move was the “end of winter,” yeah I was surprised as sh-t when winter ended in Spring 03, it was wild! For a real measure go back to the old method, you’ll see inflation is at least double what you’re reporting.

2) Grow a spine you slimy invertebrate

The market has a memory. Over the past 15 years you trained us to believe that no matter how much risk we take, and how much we lever that risk, if anything really scary comes down the pike then you will bail us out. Now we all run around like reckless, spoiled 16 year olds bidding up the price of anything we can get our hands on and not worrying about consequences because daddy (Greenspan) and mommy (Bernanke – that’s right you’re spineless AND a girl) will get us out of any trouble we get in. Well you’re only making the problem worse and we aren’t learning anything so we’ll continue taking stupid leveraged bets creating bubble after bubble so you can tip-toe around trying not to pop any of them.

3) You’re lying to yourself if you think we still have real GDP growth in this country.

I challenge you to find one measure of wealth OTHER THAN THE DOLLAR which shows the US economy as worth more now than in 2001. If I wanted to buy our country it would cost me 30% fewer euros today than it did in 2001, it would cost me less bars of gold, less barrels of oil, less ounces of copper, less btu’s of natural gas, less cubic feet of lumber, less of almost anything that has intrinsic value. Yet you keep reporting GDP growth, why? Because your quick fix is to effectively print more money so that in dollar units everything is getting more “valuable”. But guess what, to the 95% of the world that doesn’t use dollars the true value of the US economy has been shrinking, rapidly.

It’s like a company doing a 5 for 4 reverse stock split every year and claiming to have 20% eps growth, you haven’t changed the earnings just the units those earnings are measured in. The rest of the world is telling you our country is worth less by massively selling our currency and you still naively think we’re growing value – I feel like I’m at a gathering of the flat earth society or in Zimbabwenomics 101.

This will come back to bite you but not nearly as much as it bites us. The cheaper the dollar gets the more expensive all our imports get, inflation will rise faster than you can statistically manipulate it and when that happens expected inflation goes through the roof (which as you yourself have pointed out many times is by far the most serious threat to economic existence). Then the only way out will be interest rate increases as swift and severe as all the cuts have been. All the bubbles will pop at once and then we’re really in for it. Maybe it’s 10 years away but there’s a toll collector at the end of every free ride.

When will you learn that recession is ok? It’s actually healthy, it’s the cycle, it’s how things have worked for a thousand years. Trying to prevent every small recession is going to end in one huge recession (ie. depression) and no one will trust you anymore which is a much bigger problem. No economy in history has ever been able to successfully inflate its way to health, this won’t be any different.

Benny, I know you had to trade in your hypothalamus and spine to be fed chairman and now you biologically over-react to everything and are incapable of standing up straight when confronted by bully-morons like Kramer. But I’m hoping you at least still have your brain. Before you had this job all your published research showed that central banks should strictly target inflation and should be ignorant of asset prices. You had good reasons for this conclusion, don’t forget them.

Subprimely,

Long or Short Capital Management