The Most Bullish Article I've Seen This Cycle

State-Wrecked: The Corruption of Capitalism in America was a nice lunch read today. Written by David Stockman, former congressman and Reagan's budget director from 1981 to 1985, the article (in my opinion) accurately sums up the negative global economic viewpoints. The Malthusian warnings range from socioeconomic inequality in America to unsustainable debt/deficits that will cause this latest bubble to "explode," but the flaws in his argument make me far more comfortable owning US stocks. I now go line by line:

The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Agreed - the market does rise and fall and the cycles may indeed be extreme. The market (let's say S&P 500 for specificity) may indeed fall greatly sometime in the next few years (1-10?), but isn't that true in general? Let's take the 13-yr period before the bubble years of 90s+, from 1977 to 1990. Surely, things were different then? Not really - S&P started '77 @ 107 and only began the year above that number in '80, three years later. Then the market made new all time highs for 3 years on the back of- you guessed it - debt-fueled investment and fell 22% in one day in 1987.

Point is - saying market is going to crash later is like saying it will rain later. Not exactly new information and given the vague timing says only one thing: fear without catalyst.

As for the Fed printing - where exactly is this phony money vs. real money? Is it at the central bank? Not exactly, Fed is essentially creating money to pay for the U.S. debt (in qe), so actual cash is going to whoever is selling the us debt has cash. Does the new owner of the cash ask him/herself - "this is fed money, I'm going to spend it on xyz vs. non-fed money, I will spend it on abc."? I don't think so. Cash = Cash. Admittedly, there is still a distortion to the free market, because that person may not have sold if fed was not bidding so high - the bear reasoning is that Fed is buying for non-economic reasons, and the best reasons are in the free market (I paraphrase). But is the free market always right? Or more specifically, are market determined prices best for long term economic growth in say gdp per capital or total GDP? But more importantly, the Fed is distorting the market, but since when has there been a market with no distortions?

I can go on with the later paragraphs (and can do so if there is interest), but what I think Stockman is saying is that the great "Keynesian" experiment failed - i.e. government meddling in free markets does far more harm than good. Never mind national defense, infrastructure as public goods for which the free market has shown not to be good at. Given that the experiment began (from this article) in world war II when gdp per capita was 12k vs 39k now, I think the below analogy is apt:

Joe (5 yrs old): I'm sick. I have xyz symptoms.
Doctor: looks like you have abc illness i- rest, get fluids, take this medicine for it.
Joe: Awesome! I got better in 1 week!

Joe (now 10 yrs old): I'm sick. I have wxyz symptoms.
Doctor: looks like you have abcd illness i- rest, get fluids, take this medicine for it.
Joe: Awesome! I got better in 2 weeks!

Joe (now 15 yrs old): I broke my leg playing soccer.
Doctor: will need to x-ray, put in bandage, you might not get full motion back.
Joe; WHAT? I need to play soccer! THIS IS ALL YOUR FAULT DOCTOR - MEDICINE DOESN'T WORK.

**As for my bullish view - these may be the sellers of equities in the market now. Would I take the other side? Probably.