Back to the Future!

Here is an excerpt from the movie Back to the Future in which Dr. Emmett Brown who is now in 1955 is doubting Marty McFly's story that he is from the future:
Brown: Then tell me, future boy, who's President of the United States in 1985?
Marty: Ronald Reagan
Brown: Ronald Reagan?  The actor? [Chuckles in disbelief] Then who's vice president? Jerry Lewis?  I suppose Jane Wyman is the First Lady?
Marty: Whoa, wait, Doc!
Brown: And Jack Benny is secretary of the treasury?
Marty standing outside the lab: Doc, you gotta listen to me.
Brown opening the door: I've had enough practical jokes for one evening.  Good night future boy!
Slams the door leaving Marty outside.

Back to the Future is one of my favorite movies.  Dr. Emmett Brown has invented a time machine and the two have some fantastic adventures rushing back and forth through time trying desperately to adjust things so that what happened in the future is "fixed" before it happens.  The reason Marty is back in 1955 is to warn "Doc" that he will be shot by some Arabs who are annoyed that he stole their plutonium to run the time machine.  After much trying "Doc" reads the note and saves himself thereby altering future events.

The same thing is happening the world over in the halls of the central bankers.  They are desperately trying to make it "different this time".  The funny thing is that they are using the same old tools, printing money and lowering interest rates to unsustainable levels.  This methodology has never worked in the past and therefore should not work in the future.  The sad part about it is that they are convinced that this time it will work and that the last time we just did not print enough.  Their theory is that maybe plutonium is not strong enough so let's use something stronger!  The problem is that more force with the wrong tools will provide the same result.

One area where the results are the same is the stock market.  This week Twitter became a public company.  The fact that they have never turned a profit did not keep the speculators from pouring in to grab a slice of the action driving Twitter's stock up 95% above the IPO price on day one.  The current market capitalization of a money losing company is now $31 billion but that is fine because apparently the company growth will dig them right out of this hole!  This speculative frenzy smacks of 1999.  Back then I was a pretty green investor as all I had ever really known was a bull market so I would have jumped all over this issue and pocketed a fairly large amount of money.  The problem is that when 2000 hit I was hit upside down very quickly and as easily as the money had arrived it left.

Fast forward to 2013 and things are once again out of control.  There are tons of companies that are way overvalued and continue higher.  Tesla, Amazon and Twitter are just the tip of the iceberg.  Behind this come the denizens of momentum stocks that continue to soar with every billion dollars printed at the Federal Reserve.  The problem is that this time the economy is still weak with millions on food stamps and massive budget deficits.  Furthermore the currency continues to strengthen as countries around the world try to debase their currency in order to stimulate exports.  Nothing is working other than the stock market spiraling out of control higher and the mountain of debt climbing at an astonishing rate.

Looking forward to 2014 could also be like going Back to the Future in that it could be the next seven year itch.  Think about it 2000 and 2007 were disastrous years for the markets.  Furthermore 2007 was far worse than 2000 for the simple reason that the amount of stimulus was far greater in 2003 and 2004 than it had been in 1998 and 1999.  This time around the stimulus is higher by multiples of 100.  So if you thought 2007 was painful do not expect next time to be better.  Ensure that that you learn from the past because believe me the current tinkering will not change the outcome.  The only thing I do know is that if plutonium created the 2007 explosion then I am not looking forward to the result when this new super fuels ignites.