Enjoy The Central Bank Party While It Lasts

"It is patriotic to accept to pay a supplementary tax to restore the country.”

-Francois Hollande, the Socialist Challenger for the French Presidency, after proposing a 75% marginal tax rate on earnings of over one million euros per year

“Patriotism is the last refuge of a scoundrel.”

-Dr. Samuel Johnson, distinguished eighteenth century man of letters and author of the influential A Dictionary of the English Language

“If this plan saw the light of day, it would end in catastrophe for French football."

-Frederic Thiriez, head of the French Professional Football League, in response to Francois Hollande’s tax proposal

Don’t Fight the Tape – But Prepare for an Unhappy Ending

Central banks are printing money all over the world. New names have been given to what is really an age old phenomenon. Desperate governments have traditionally debased their currencies when they have no other way of financing their deficits. Quantitative easing, LTRO, Fed/ECB swaps, whatever. A new technocratic lexicon has been invented to cover what is really a time honored expedient of debasement and paper money printing.

Investors for the moment almost have no choice. Get out the surfboard, hitch a ride on the global tsunami of freshly minted central bank money and get long equities. In 2012 equity markets have rallied everywhere, particularly emerging equity markets, and will probably keep doing so. Short term interest rates are near zero and likely to stay that way for the rest of this year. Investment managers are tired of telling their clients that they earned zero and had to pay a fee anyway. The European crisis has been overcome by massive LTRO money printing and a friendly “borrow all the dollars you want” swap agreement between the Fed and the ECB. And the US is in the midst of a tepid recovery (better than nothing!) Lastly, China seems to be slowing but not crashing.

Money must head for risk assets. Tough luck for defined benefit pension funds and retirees who until recently lived off of nice, safe bond income.

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