Vitaliy Katsenelson's Blog

Nothing defined Alan Greenspan's tenure as chairman of the Federal Reserve Bank more than his wholehearted embrace of capitalism. With early roots in his 30-year association with the novelist and philosopher Ayn Rand, that faith grew into an unconstrained confidence in the free market and deregulation to steer the economy and ward off crises.

Profit margins are a tick away from all-time highs and are creating the impression of cheap equity valuations. But that impression is a mirage, because today’s generous margins are destined to shrink.

I am a very nervous flyer. Whenever there is a little bit of turbulence, I look out the window, see shaking wings, and start to wonder whether they’ll keep holding the plane up. Then my rational self kicks in, and I tell myself that statistically it is safer flying than driving, that the pilot’s incentives are aligned with mine (it is not like he has a private parachute). Eventually the turbulence subsides and I go back to whatever I was doing.

During the ’80s and ’90s, ignorance was bliss. The global economy was growing nicely, and analyzing it (or even paying attention to market cycles) seemed like a waste of time, as the economy came in only three flavors: good, great and awesome.

Over the next eight months the Federal Reserve will conduct QE2 – quantitative easing, the sequel. It will buy $600 billion worth of US long-term bonds in the open market, close to 7% of all Treasury securities in public hands, or about the amount the debt that the federal government will issue over that time period.