ML-Implode News - Hussman - "The Price of Distortion"

The dominant concept today, of course, is "Don't fight the Fed." Proof of success is easy to find in the period since 2009, but the evidence is far weaker in the historical record. For that reason, my impression is that the appearance of success in this instance is an artifact of a cycle that is only half-finished, and that the unquestioned faith in Fed easing and "Bernanke puts" will be faced with yet another devastating counterexample before tooÂ long -- though not necessarily in the immediate future. One might argue that the unconventional nature of quantitative easing means that this time is different, and that stocks will advance until QE ends, at which point everybody can safely take their profits. But this belief rests on the hope that tens of millions of investors can ultimately get out at prices that rely on all of them being in. Â Equilibrium is a tricky thing.
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Frankly, I view the present course of monetary policy as reckless - not because it threatens inflation (which I don't think it will for several years), but because it diverts scarce capital away from productive investment and toward speculative activities; because it fails to act on any economic constraint that is actually binding here, so has little hope of providing the economic "support" that it purports to offer; because decades of historical evidence provide no basis to expect a material "wealth effect" from stock values to the economy; because the policy lowers hurdle rates and encourages borrowing for unproductive purposes - including stock buybacks at record highs (and there is no evidence that buybacks are a good indication of value); because it punishes the elderly on fixed incomes; because it perpetuates a bubble-bust cycle created by Fed intervention, which is not the medicine but the very poison itself; and because moving to the left on the liquidity preference curve will likely be as painful as moving to the right has been pleasant. Meanwhile, we'll continue along a studied, disciplined course over the remainder of this market cycle, considering a broad ensemble of evidence that has been validated across market cycles throughout history. Our views will change as that evidence does.

Relevant:

Hussman - "The Price of Distortion"