Quote of the Day: The Problems With Easy Solutions

While discussing markets, economies and general setups with the board of an institutional client last week, I was presented the ever-pressing question asked of those of us who’ve managed a few market rodeos in our day, “roughly when do you expect the market to roll over?”

While our discussion covered more than just the equity market, stocks were of course what the gentleman was referring to. 

Apparently something in my commentary — despite making it clear that the ice, as thin as it may be, doesn’t necessarily have to break — inspired the question. 

After reiterating that last point, I said I’d be amazed if we don’t see the major averages take a double-digit hit sometime during the course of this year, likely as we get into the second half.

Last evening I was reminded of the above question — of that day’s entire discussion in fact — as I read the following in best-selling author and macro-driven portfolio manager Diego Parrilla’s insightful book, The Anti-Bubbles.  Should sound familiar to regular readers:   emphasis mine…

“Central Banks and Governments tend to respond to crisis with two simple and easy solutions: print more money and borrow more money. 

These easy solutions seem to have worked well in previous crises, but the reality is that they do not resolve problems: they simply postpone and often enlarge them. 

As a student of the school of “no free lunch economics,” I worry about the current path and try to understand how and when the consequences of these excesses will manifest themselves. 

We need to be mindful that while Central Banks and Governments may have already gone too far with their policies, it can get much worse as they will do “whatever it takes” to keep the wheels spinning. 

A double-up, triple-up, and quadruple-up of bets that are enlarging, not resolving, the problems.”

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