The Myth That the Bad News Is "Priced In"

In John Mauldin's weekly newsletter last week, he invited Bennet Sedacca of Atlantic Advisors to write an opinion on the state of the U.S. economy. Here is a very brief excerpt from a very good opinion called "Setting the Bull Trap":

"Forcing money into risky assets is perhaps the most dangerous experiment ever done, and is so large in scale and so unprecedented that we have no idea how it will end. I expect it to end poorly and with hyper-inflation. The funneling of assets into risk is masking the deteriorating fundamentals and giving the appearance of a market that has bottomed. But this is sleight of hand, an illusion.
"The Fed has declared a war on savers, a war on prudence and provided the ultimate Moral Hazard Card-and with our money no less. They are also setting up the ULTIMATE BULL TRAP-a trap so large that when it is sprung, perhaps as early as the end of the first quarter/beginning of second quarter that there will only be sellers left.

• Unemployment on every front is rising. market that has bottomed.
• Tax receipts are down and State Governments are suffering.
• The debt market, except that artificially supported by the Government is closed.
• Earnings estimates for the S&P 500 are down 60% year-over-year.
• Stocks (using the Dow as a proxy) are at the same level they were 10 years ago.
• Industrial Production around the globe is imploding.

"Here is the magical question: "why is there is so much bad news, and is it fully discounted in prices?" If so, "why are the Fed, FDIC and Treasury Department so desperate to drive down interest rates to zero, buy troubled assets, ruin what used to be an efficient debt market in Mortgage Backed Securities, Corporate Bonds and Preferred Stock?"

Read the entire newsletter here.