HATS AND RABBITS

Magicians are famous for pulling rabbits out of hats. Politicians and bureaucrats are famous for pulling regulations out of their...well, you get the idea.

Jeremy Grantham, main strategist for GMO, recently pulled up a number for the S&P 500, 2250, that would indicate in his view bubble territory for this long running equity circus. At its recent close of 1978, we're not there yet.

In more arcane terms, according to a recent Financial Times article, "a bubble is when prices rise two standard deviations above their norm--something that would occur every 44 years if markets behaved as statisticians would like." 

The key words here are "behaved as statisticians would like." Our old girlfriend never quite behaved as we would've liked. But then that's the same charge she leveled at us. Having said all that, we still think it's a good number to keep in mind if for no other reason this is not in our view a market to toss new money at.

We've said before and we'll repeat it: There are folks who want to keep this party going. In Grantham's noted view that includes, with a few exceptions, the current Fed. Despite what they will claim, they are not your friends.That giant sucking sound you hear is them trying to suck in more innocent money before they yank the drain pug.  

It's called the "Wealth Effect." We all feel better, bigger and richer and so we'll rush out and revamp the national past time--consumption. 

Yea, we're well aware of the fear of missing out phenomenon. Quite influential, for sure. It's right up there with its Siamese twin, the fear of being in when the stampede begins.

Nonsense knows no bounds. Mexico and Canada recently floated 50-year and 100-year bonds. A few years ago Coca Cola floated a 100-year bond. So far, so good. Now your friends at the U.S. Treasury are contemplating the same. Lemmings tend to flock.

This could be a good deal for the government which means in all likelihood it's a bad deal for you. In part it's about rollover costs. If interest rates are higher you have to finance your new debt at a higher cost. That's your government's thinking.

For you here's an exercise: Buy one of those puppies at par and when interest rates rise a few years down the road try rolling it over with 95 years to go to maturity. Rabbits aren't the only thing that get pulled out of hats.
t. man hatter
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