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The Coming End of Bad News=Good News Syndrome

November 5, 2012

Since the days of the Greenspan put, bad news from the real economy was regarded as good news for the markets because the central banks would step in to bail the markets out.

1) A Bad jobs data = good, more QE

2) Hurricane Sandy = good, because more economic activity (this is really hilarious, because when wealth is destroyed, how can long-term wealth, represented by the S&P 500, go up irrespective of the increased short-term economic activity?)

3) Bad Earnings compared to last year= good, because it was better than expected

We predict that this syndrome, prevalent since Greenspan stepped on the throne of the Federal Reserve, is drawing to an end.  Soon reality will have to be faced fair and square.  There is a pronounced weariness against short-term fixes (is that why Bernanke has decided not to seek a new term?).  Angela Merkel, the German chancellor was the first to face reality last weekend,-she said that the European crisis will last another 5 years not one or two years as pie-in-the-sky chaps were saying .  Financial analysts would do well to retool for this new reality, not seen for a generation.

 

 

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From → Credit Analysis

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