12/23/2011 - The most important lesson of 2011!

Mike Larson | Friday, December 23, 2011 at 7:30 am

 http://www.moneyandmarkets.com/the-most-important-lesson-of-2011-48579?FIELD9=2 

It’s at times like these, with the year winding down, that I always get contemplative. I like to ponder the last 12 months of market action, and consider what lessons we can all learn from them.
If there’s one theme that stands out to me for 2011, it’s this: Policymakers are trying to fight a battle they can’t win!
Interest rate cuts. Money-printing programs. Stimulus plans. Powwows every few weeks. They’ve all been tried, and they’ve all failed to accomplish much for the global economy or the capital markets.
Indeed, barring some large last minute rally, the S&P 500 will likely finish the year roughly flat. But the carnage is much worse overseas — in both developed and emerging markets …
As of Thursday’s close, the DAX in Germany was off 15.4 percent, while the FTSE in the U.K. has lost 8.1 percent. The Brazilian Bovespa has shed 17.9 percent, while the Shanghai Composite Index has bled 21.1 percent.


The Track Record of
Failure Is Clear …
Throughout 2011, we were subjected to meeting after meeting, and proposed fix after proposed fix — from both fiscal and monetary policymakers:

  The second Greek bailout in July,
  The launch of Operation Twist from the U.S. Fed in September,
  The Congressional Super Committee “results” in November, and
  The “meeting to save the euro” currency in early December.

Each and every event was hyped in advance — billed as the ultimate solution to what ails the economy and the markets. Many times we saw stocks, commodities, and the euro currency rally for a few days or a few weeks shortly before or after those developments.

British PM David Cameron said the 17 single currency countries must do more to tackle their debt crisis themselves.

But ultimately, all of those rallies failed. Ultimately, policymakers failed to deliver on the promises they uttered. The 200-billion euro International Monetary Fund (IMF) bailout fund that was supposedly one of the concrete achievements of the December summit is just the latest example.

We were told that national central banks throughout Europe would funnel 200 billion euros to the IMF to create a slush fund. That fund would then turn around and lend money to troubled European nations.

But now, we’re learning the U.K. has no intention of ponying up the more than 30 billion euros worth of aid it was expected to contribute. Other countries throughout the euro zone are getting cold feet, too. Result: The fund will almost certainly fall short of its money-raising goal, just like the EFSF did before it!

… But Why?
So WHY do these ideas keep failing? Why is nothing working for more than a few days or weeks?
Because we’re in a worldwide economic slowdown driven by massive deleveraging and debt aversion! There is NO way back to the debt-fueled growth economy of the early 2000s, or the equity bubble-fueled growth economy of the 1990s. That’s the reality on the ground as I see it.

 But the politicians and the cheerleaders on Wall Street won’t admit it to themselves, and most certainly won’t admit it in public. So they keep trying to come up with ways to put Humpty Dumpty back together again! They keep failing to learn the most obvious, powerful lesson of 2011!