Markets Will Surge on $5 Trillion in Fed Cash

Over the next several months, the U.S. government will spend a staggering $5 trillion – about what was spent fighting World War II – in an effort to save the global financial system and jumpstart the economy. That enormous SEA of CASH will spark one of the biggest, fastest rally-backs in stock market history. No doubt, it's going to be a rocky ride. There will be HUGE surges up and down. But the fundamentals point to massive rebound in stocks in the months ahead. – News Max

Dominant Social Theme: Markets are coming back!

Free-Market Analysis: We never much believed in the theory of deflationary depressions in modern times because it was obvious to us that central banks would flood the system with money rather than let the system cleanse itself as it should. Of course, the cleansing will take place anyway, by fits and starts, sooner or later and the money being thrown at the problem, the trillions and trillions of dollars are wasted in a larger sense.

The trillions are wasted because they prop up industries that should fall down, those that are providing only excess capacity, and will dwindle sooner or later, anyway (Chrysler comes to mind). They are wasted because they support nonproductive resources (such as public schools) that are unnecessary and even counterproductive. The trillions are wasted because they give rise to a consumer society that is mal-positioned vis a vis what would be a "real" economy absent such tremendous and counterproductive monetary stimulation.

And now comes the stock market, once again. It is perfectly possible that the trillions that the central banks like the Fed are throwing at the economy will find their way into various stock markets. But this doesn't mean that economies are recovering or that businesses are becoming productive. It does mean that another asset bubble is forming. Increased capital, in the form of high equity prices, will not at this point in the business cycle translate into an immediate recovery. The market may indeed boom, but why would the fundamentals change? The larger industrial bubble will continue to deflate – only this reality will be lost in the noise of the markets' fitful expansion.

Conclusion: Yes, it is possible to inflate an asset without changing the fundamental reality of an economic situation. The stock market went up in the 1930s, yet the Depression continued. Those few brave enough to chance the larger stock market in this day and age may make some money. For the rest of us, there are, perhaps, mining stocks. Mining stocks did indeed do very well during the Depression, and unlike housing stocks or pharma stocks, there was a reason why. People are investing heavily in gold and silver these days, and once the market gets going again, if it gets going, mining stocks will be among the prime beneficiaries because they are providing the true value inherent in money metals. Gold and silver hold their value, especially in troubled times.

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