In the Land of the Nihilists

Nihilism, according to Webster's, is the rejection of established laws and institutions. In philosophy, the nihilists represent an extreme form of skepticism. The rejection of any objective basis for truth is the foundation of anarchy. After Oprah's tear laden moment in Chicago's Grant Park, the Tea Party and global QE-mania, we have descended into the Land of the Nihilists.

Far away from the BLS, the Twitterati, the TV hyper-coverage and the Pynchon-esque paranoia and conspiracies;  a "meh" Employment Report stapled to some upward revisions to prior disappointments riffled through the markets. The equity market probed new highs for the year and  End of the World-ers from May moved to the front of the Nihilist Pack. The bond enthusiasts cheering the approach of the 1.2% 10 year changed the topic to gold and oil. The hyper-inflationists -the economic answer to Linus' Great Pumpkin alarmism - dialed  the rhetoric up to 11.

From our perch things "kinda, sorta looked ok-ish." This is more "temperate gruel" than "Goldilocks" but its nourishing a damaged system. We feel the economy, and the schizo barometer thereof known as the capital market, has reached a critical moment in the cycle. The FOMC Minutes revealed an interesting nugget. Many panelists saw an uptick in consumption and voted for opened ended anyway. We are wondering if the Fed viewed additional balance sheet flow as a jolt toward self-sustaining traction rather than slowing confirmation. Unlike prior balance sheet operations, spread metrics that QE compresses were already narrow and falling. (telegraphing intent obviously effecting to some degree)

We reject the empty and negative Nihilist world view. We have, amazingly, found ourselves in 2012 on the side of controlled optimism. It may just be something I ate but I'm feeling a twinge in the gut. History shows you don't get a crisis where everyone is looking. Europe (and by proxy the financial system) cannot be the tail event. However, the acceptance of low volatility and tight spreads as a constant are the agar that germinated the credit super cycle disaster. Central bankers are Petri dish-ing that mold like googly eyed 7th grade Science Fair participants. Something is bound to go heinously wrong somewhere, sometime. We are getting a tad nervous in the Land of the Nihilists.


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