Despite short-term memory loss affecting most investors, asset bubbles tend to crash with a vengeance. From over-valuation, risk ignorance, and reactionary sentiment, the current bubble-trifecta shows signs of turning over.
The monetary powers that be have succeeded in creating serial asset bubbles. Each is extending from the great expansion of credit pivoting on the last official dollar default in 1971.
And yet once, again we are bombarded with the mantra: “This time it’s different”.
Partly, it is true. From a monetary standpoint, we’ve been spiraling from one overextended extreme to another for the last 100 years.
Of course, it is difficult to compare this period with the last – just before the crash.
The latest cliff involves three enormous bubbles, not just one.
Equities ($18 trillion market cap) have risen to all-time nominal highs despite a weakening economy.
The $40 trillion (total outstanding) U.S. bond market has been in a bubble for so long that it has become the fabric of everyday macro-investing life.
Considering the ongoing and overt manipulation of interest rates to unnatural levels, an emergency waiting to happen.
There is no comparison to bubbles past. The consensus reports what is best for its own interest.
Two tiers of justice to match the propaganda machine of two tiers of information.
Some of the most entertaining content in the aftermath of the financial crisis came from the ludicrous attacks against those who saw what was coming. Peter Schiff was right – phenomenon permeated the interwebs.
Sadly, few have learned.
Despite clear and overt manipulation of key interest rates and obvious headline data adjustment, the cheerleaders are back in full force again.
Just in time for the next crisis.
Each successive bubble is further out of the realm. But a long enough time line, you will have new generations that replace the old and forgotten mistakes.
The main drivers of these markets are not valuation, or even fundamentals, but perception.
Risk moderation is a joke. Portfolios are balanced by how much leverage they can get away with. Not on the potential losses.
Don’t fight the Fed; the belief that the Fed is omnipotent is a strongly held belief.
Who can blame them? If your job and bonuses depend on it, and these (zero rate borrowing) gifts keeping coming, it is like manna from heaven or the most powerful force in nature…
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