Market Distortion

Once you're gone
You can't come back
When you're out of the blue
And into the black
--Neil Young

John Hussman once more emphasizes the two catogories of government policy that are massively distorting markets. Current fiscal policy encourages spending and debt. This policy distorts markets by artificially discounting the value of savings versus consumption. It also amounts to a large transfer of wealth from consumers to producers. The correlation between aggregate debt and corporate profits continues to be eye-opening to me. Corporate shareholders are the primary beneficiaries.

Monetary policy encourages further borrowing and leveraged speculation. This policy distorts markets by depleting the stock of savings even more. Meanwhile, investors seeking income must 'reach for yield' by buying risky securities that they would never touch in unhampered markets. Carry traders borrow cheaply to finance speculative projects with huge leverage.

If these policies and/or the perception of their benefits do not persist indefinitely, then a large reversal of fortune is pending.

position in SPX, Treasuries