re: Discussion of Fed Liquidity’s Impact on Equity Markets

I'll be putting money in TIPS and Treasuries. I'll probably find an ETP that I can use as a proxy so I can use leverage. Cash, vol, precious metals (for the time being) and technology equities are the only other exposure I'll have and currently do own.

I don't know why it took me so long to figure out what the Fed is actually doing with the PDs. They aren't increasing liquidity, they are reducing it because the banks aren't lending against their new reserves, and in fact are doing the opposite. Some guy I was listening to explained it like if your kid has a bank account in his name that you opened up for him. It's your money not the kids, so the PDs aren't getting flushed with cash in the transaction but instead the ability to lend.

Lacy's point on rising debt levels and decreasing marginal revenue product is so important in the deflation argument. One I've observed and I'm sure you have as our illustrious Congress spends our money to no end. One thing I disagree with him is that technological innovation probably won't be enough to offset the loss in productivity because the federal government appears to be choking that out with regulation and taxes just like Europe did. We don't have the culture in the U.S. anymore to encourage that kind of entrepeneurship and risk taking in the long run. We will continue to shift to a command and control economic model and not reverse that course this decade.