How long can Powell and Trump talk up the markets?

Psychology in the short run, fundamentals in the long.

The notes from new Federal Reserve chairman Jerome Powell hinting at strong economic numbers are driving up the stock market and the U.S. dollar, continuing the unprecedented uptrend since the inauguration of Trump and his administration.

Persuasion is in full force, as investors and speculators around the world are putting their faith in the words of two far from prescient individuals rather than doing due diligence by analyzing the underlying forces driving today’s economy.

What is more likely driving markets up around the world in the recent short term? Real growth and production, or simply higher deficits, debt and leveraged speculation backed by greed, hopes and dreams?  If the U.S. is seriously in great economic health right now, why is it taking so long to get off the stimulus and cheap money?  All this “hinting” at rate hikes rather than just guaranteeing them is pure talk and no substance.

It’s akin to the alcoholic telling everyone that he doesn’t have a drinking problem, and that he’s perfectly fine and healthy.  One more drink won’t hurt — he says he’ll stop eventually.  And markets are believing him.

Inflation is too low! GDP numbers are looking great!

Meanwhile, the huge elephant in the room, actual inflation and lack of growth, the trillions of debt and the trillions more in deficit, are just like the empty bottles of whisky and hard liquor littered around the alcoholic. Such an obvious thing to see, yet ignored as to avoid facing the reality of the situation.

Rock bottom is approaching, and the alcoholic will be turning upside-down the lives of all the people around him.  There will be no choice but to go cold turkey, negotiate with the higher interest rates being artificially suppressed, give up the cheap money, or otherwise face the imminent equivalent of alcohol induced liver cancer.

Can the new Federal Reserve chairman and the Trump administration continue the denial of reality for two (or six) more years without succumbing to rock bottom?  Or will the bond markets finally tell the U.S. and much of the western world it has a serious addiction problem: an addiction to endless borrowing and spending?

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