On top of Modern Monetary Theory (MMT) here comes "Modern Fiscal Theory"!
Yes, there were more announcements this week regarding an escalation in fiscal spending. This time in the form of a $1.8 trillion program to aid families and children.
I touched on the monetary and fiscal largesse in Tuesday morning's column, "A Contagious Idea and Belief in A New Paradigm is Spreading Amid Our Markets."
But it's a bad meme.
The Bull Market in Complacency is growing (see "The Long Boom: A History of the Future, 1980-2020").
Coincident with higher stock prices, traders and investors have grown unbelievably complacent -- more so, at least judged by large and growing hedge fund long exposures and elevated individual investor bullish sentiment.
The large doses of monetary and fiscal stimulation have intoxicated the majority of market players.
"What we have learned from history is that we haven't learned from history."
-- Benjamin Disraeli
-- Danny Noonan
I guess one has to ask if printing and spending money was so easy, and without adverse economic and market ramifications, why haven't the Fed and prior Administrations simply printed and spent throughout the last century?
The answer is obvious: there are adverse outcomes that come from undisciplined policy.
As subscriber Mikey says, modern monetary and fiscal theory will likely debase our currency further, raise interest rates and inflationary expectations.
And it could, as he suggests, result in a Zimbabwe-like rise in the value of financial assets, destroying all short-sellers in a "nothing is too high market."
That said, like the article referenced above, a new paradigm (of a long boom) expressed during the dot.com boom, things did not work out well and there was no paradigm shift as the Nasdaq dropped by almost 80% in the early 2000s and the domestic economic boom stumbled.
So, I am not too afraid to short certain stocks and I am highly certain that the market will fall from grace against the background of undisciplined monetary and fiscal policies.
The question is not if but when things blow up.
You just have to be very disciplined in the near term if you are shorting. But eventually, things will likely run out of gas -- just like the speculative gewgaws (e.g., SPACs) have in the last 45 days.
Is this Russia? This isn't Russia. Or Zimbabwe.
(This commentary originally appeared on Real Money Pro on April 28. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)