I believe that we will see this W shaped recession. It's why I am still bearish. Whatever short term signs we see of a recovery, they are, in my opinion, overwhelmed by the long term problems caused by the action in response to the recovery. In other words, I believe the medicine will wind up worse than the ailment.
Between the Fed's quantitative easing (creating money out of thin air and buying bonds with it), the massive stimulus, the bank bailouts, all of these things have run up our debt to massive levels. What does this cause? First, it causes higher interest rates, high inflation, and a weak dollar. Already, we are seeing signs of the negative effects of this. Oil has steadily been rising over the last two months. That's partially to do with the dollar, as oil is priced in dollars.
What will $3 a gallon gas prices do to our recovery? I have spoke often about the rising interest rate in the Ten Year U.S. Treasury. That's back to just under 3.7%. This has recently caused a massive short term run up in mortgage rates. What will 6% or even 7% mortgage rates do to our recovery?
Speaking in front of business interests today, George Soros echoed my beliefs.
Billionaire investor George Soros on Tuesday predicted a "stop-go" economy for the United States, saying fears of inflation will drive up interest rates and choke off growth.
Soros, one of the world's most successful hedge fund managers who was speaking at a breakfast hosted by the Wall Street Journal, said borrowing costs are the major headwinds for the economy.
"As markets revive, fear of inflation will drive up interest rates, which will choke off recovery," he said.
Rising U.S. Treasury yields have driven mortgage rates back up, threatening a recovery in the housing market and a refinancing boom that has helped preserve the still-fragile health of recession-weary households and the banks that lend to them.
The rise in bond yields and mortgage rates may also act to check the huge recent rally in global stock markets of the past three months, with the Federal Reserve trying to end an 18-month recession and yet not spur inflation.
What Soros never addressed is the role of President Obama, the candidate he furiously supported in the race, in engineering the recovery he now predicts. In fact, Soros was downright disingenuous to the point of suspicious in his speech. Soros went on to claim that bubbles can't be avoided, that government must limit the dangers of bubbles, and that regulators are always less knowledgeable than the market itself. In fact, if I didn't know Soros any better, I would say he's a free market champion after reading the notes of this speech. Yet, I know him better. This is the same George Soros that is a major funder of the universal health care campaign. While he speaks about light regulation out of one side of his mouth, he funds Socalist causes out of the other side. So, it would seem he got what he wanted, and yet, in this speech, he indicts the entire domestic policy of President Obama regardless.
Soros is no dummy. He knew exactly what platform Obama was going to implement when he threw the entire weight of his multi billion dollar fortune behind him. Yet, now, suddenly, he comes out to indict that very same platform in its entirety. That obvious dichotomy was neither asked nor answered. That's too bad because it's awfully suspicious.