Faustian Weblog

Motors Liquidation Company (MTLQQ.PK) is the ultimate Faustian stock of the day. It represents the old General Motors company – the clunkers minus the cash, the environmental devastation, the laid off workers, and best of all the worthless debt. There will be no government bailout, no turnaround, and no investment, and virtually no possibility whatsoever of future earnings.

That being said, this company’s stock is up 50% in the last two weeks, outperforming such stellar corporations such as Google, Apple, and Whole Foods combined. Hey it’s a car company and there is a future in that – presumably. Proof positive that a stocks value is based on nothing else than a stocks value’s trendline, and at 88 cents a share it’s a steal.

The strange thing about Oil is that if the price goes down say below $63 per barrel, it signals that the consumer’s confidence is petering out and there will be no recovery. By the way, this was the price and the accepted scenario two days ago, causing a 4% decline in all major indices. Today, an eon or two days later, the price is $73 on an ‘unexpected’ draw down of US supply. So now of course, energy stocks are high, but the consumer is sure to actually lose confidence the next time he/she goes to the pump.

It would appear that we are bracketed by a Faustian trap: too low and no confidence, just right for a recovery, or too high for it to overheat. Unfortunately, like some Edgar Alan Poe novel the range of the bracket is narrowing every day.

I have finally realized why there will be no inflation – despite the massive printing and effective doubling of the money supply of M2 by Obama. First, in a Faustian economy there is no relationship between money supply and prices. There is only a relationship between debt and prices. Second, as more debt becomes worthless, value is vanishes from the system and prices deflate. The government could double the money in circulation and as long as foreclosures keep up, there will be no consequences to the bottom line. This is Faustian magic and the Faustian economic paradox at its best.