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The Lollipop Guild: Stock Market Bulls

Written by Gary North on December 12, 2011

In The Wizard of Oz, three Munchkins represented the Lollipop Guild.


Economist and fund manager John Hussman has taken that phrase and has elaborated on it.

We represent the Lollipop Guild

Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums.

What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world’s policy makers are increasingly wrecking the prospects for long-term economic growth. The world’s standard of living (what we can consume for the work we do) is intimately tied to its productivity (what we can produce for the work we do). That productivity requires our scarce savings to be allocated to productive physical capital, and to productive human capital (primarily education).

Nietzsche famously said “What does not kill me makes me stronger.” The corollary is “What constantly rescues me makes me weaker.” The world will only stop looking for bailouts when policy makers stop handing them out.

Hussmann provides a series of charts that show how precarious the recovery is. ” The uniformity of recessionary evidence we observe today has never been seen except during or just prior to other historical recessions.” But the heart of the problem is fiat money, which is supposed to make us wealthy through stock speculation.

My comment: The S&P 500 peaked in 2000 at 1527. It is down 18%. Second, the dollar has declined by 30%. So, the Federal Reserve’s stock market-boosting strategy is not working. It has not worked in 12 years.

Continue Reading on www.hussmanfunds.com

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