Juggling Dynamite

Joe Scarborough and Paul Krugman debated debt last night on Charlie Rose. The trouble with the can-kick crew personified in Mr. Krugman is that they never think it is a good time to cut government spending (or invest for the future in things like energy efficiency, education or infrastructure for that matter). Not during booms and certainly not during downturns like today. It was that short-term thinking over the last 30 years that got us into the present mess. Here is a direct link.

Kevin Warsh, Hoover Institution; Ken Langone, Invemed Associates; Stanley Druckenmiller, former chairman & CEO, Duquesne Capital Management; and Geoffrey Canada, Harlem Children’s Zone CEO, discuss how the Fed’s low interest rate policy is driving equity markets, weighing the risks of playing along and how it is all likely to end. Here is a direct link.

Good picture reminder courtesy of zerohedge.

Four and a half years since the last cycle peak, the question that every individual and capital allocator must answer for themselves: which phase of the market cycle are we most likely in today? No one gets precision or certainty. At every stage of every cycle we all have to make our best probability assessments, place our bets and live with the consequences. Except if you’re an investment bank of course; in which case: heads they win, tails the rest of us lose. But then again, the Bernank said in his testimony last week that “too big to fail” is no longer a reality, and new resolution rules provide for the orderly winding down of failed banks without taxpayer funded bailouts. He did say that on the record. One thing for sure, the next wave of the financial crisis will no doubt test all the rules and belief systems.