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His latest note to clients is probably one of his most important yet, as it's addressed to the perma-bears that hate any notion of easy money, the Fed, or stimulus, and who argue that we're just in a sugar high period that will all come crashing down.
You know who these people are that he's talking about, even though Zervos doesn't mention them by name: Rick Santelli, ZeroHedge, Jim Grant, etc.
CNBC screengrab
I actually feel a bit sorry for the bears. They have warned us for years about the dangers of central bank balance sheet expansion and monetary accommodation. And their "elite" have even banded together in the WSJ to sign protest petitions against QE. But the spoo keeps rising, jobs keep getting created and wealth keeps getting generated (at least for those who didn't follow the bears' ill-conceived advice). I feel sorry for them because they are simply living in the dark ages of monetary policy theory. They are stuck thinking like witch doctors rather than modern medical doctors.
What does he mean, specifically?
What he's saying is that these policy bears argue that we need a hard dose of Austrian-economics, Great Depression-style pain to clear out the "rot" from the system. And that after we've taken our lumps and inflicted pain on ourselves (sending unemployment to over 10 percent in the process), then we can start to form a true recovery that's not built on debt and low interest rates.
But that's misguided.
Zervos offers a great medical analogy:
In order to illustrate the dichotomy between our current monetary doctors and the witch doctors, a metaphor will be useful. Imagine that you were in a car accident and you suffered head trauma. You had excruciatingly painful headaches and you had lost some ability to move your arms and legs. One set of doctors arrived on the scene with pain killers, anti-inflammatory drugs and rigid set of therapy to help you regain all your motor skills. The good news was that you were going to make a full recovery, the bad news was that when it came time to take you off the pain killers you might suffer some adverse addiction related consequences from the meds. The doctors however assured you that when the time came they would help you through the "cold turkey" period and it would be just fine.
While you thought about the costs and benefits of this treatment, another set of doctors arrived. They did not believe in pharmaceutical treatments and warned of the long term side effects associated with having a big "internal balance sheet" full of these drugs. They showed you pictures of Germans with wheel barrels full of money trying to buy a loaf of bread in the 1920s as a deterrent to using the previous doctors' recommended remedy. Instead, they proposed a treatment that was used all the way back in the 15th century and was perfected by Dr. John Clarke in the 17th century. This treatment would involve enormous pain upfront, but it would ensure that you have none of those nasty side effects from the modern day pharmaceuticals. The treatment was called trephination and it involved drilling a hole in your skull to release the pain from the trauma. They said that if you would like to read more on trepanning take a look at the following web site.
Here's what trepanning looks like:
The bottom line is: The Santellis and Jim Grants of the world think we need to solve our problems by drilling a hole in the side of our skull, and relieving all of the pressure that way.
That's old style medicine.
The new style is: Apply the painkillers that work, get through the kinks. And then yes, have some issues that come up when you're withdrawing from morphine, but at least they're issues that are far more easier than having a gigantic hole in your skull.