Don't blame Wall Street for the financial crisis.
Well, I guess you can blame Wall Street all you want - after
all, the risky behavior taken on by Wall Street definitely played
But for the real underlying cause of that risky behavior, you
have to dig a little bit deeper.
First off, why and how would Wall Street's "best and
brightest" financial wizards pursue risky behavior?
As to why, the answer is that they were practically guaranteed
to be backstopped by the Federal Reserve and the U.S. Treasury in
the event that they failed. So there was essentially no real risk
associated with their risky behavior.
And for how - the easy-money policy from the Fed made it
highly lucrative to shuffle risky mortgages around. Remember,
environment was put into place by the Fed as part of the federal
government's initiative to increase home ownership.
It's a classic case of unintended consequences. The government
constantly pursues its pet projects in an effort to do what it
thinks is popular or helpful (or self-serving) - but every single
time it neglects to remember that every action it takes sends
ripples of speculation, misallocation, and faulty signals to the
Without ridiculous federal initiatives that made it highly
profitable to create mortgage products, there's no housing
bubble. There's no subprime blowup. There's no trillion-dollar
credit default swap market on reinsurers like
Right now the Fed's sticking with the same exact playbook that
caused the financial crisis in the first place - except now
they've turbo-charged their efforts.
It's not enough to have low interest rates - we need
zero-interest rates. It's not enough to accommodate growth, we
need to print money to give to corporations and banks so that
they hire people and make loans.
So what's the pet project that the Feds are fretting over
today? What do they think is popular or helpful or
And what will the next crisis look like?
Today, the Feds have all but turned their backs on employment.
So that's out of the picture.
The housing market has scared most consumers making them shy
about buying a new home.
So the Federal Reserve and the Federal government seem keyed
in on buoying the stock market.
That's the metric everyone seems to pay attention to. And just
like with the housing market, I expect that we'll continue to see
huge gains made in stocks…
Until the bottom drops out.
It's a great time to trade stocks. You buy today and in a few
days or a few weeks, you cash out for gains. This strategy will
work fabulously until it doesn't. And I can't say when it will
But what I can say is that while everyone's piling into and
out of stocks, the commodity story is being ignored. And the
thesis for owning commodities is as strong as it's been in the
last five years.
Even with the small rallies in
over the past few months, these commodities are still well off
their highs. Don't be distracted by the government's funny-money
fueled stock bubble. Take the time now to build your position in
these real assets.
I know I will.