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Mind Matters - Forever blowing bubbles moral hazard and melt-up, by James Montier
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the only basis on which this system can function is a bubble-bust one. period. and that can not go on forever. somewhere in the future there another dark age coming. maybe not in 20 yrs, or 50, but its coming.
And back to our comments from last night... if the monetary system was more simply an exchange to meet mutual societal needs then it would be virtually impossible to create bubbles... but the more we use massive amounts of leverage with a focus on accumulating wealth... the more frequently we will see massive bubbles.
And moral hazard will now be the wild card... with this degree of moral hazard never seen before in the United States... do you really think that anyone would be buying the big banks right now... with BAC at $17.39 (off the lows of $3.14 in 3/09)... I don't think so unless there was an explicit government guarantee of perpetual success no matter what the cost to public. I think that Grantham is onto something.
i like to think monetary system like a Cantor Set. Lets say the money supply ( whether currency being FIAT or asset-backed) is denoted by M and the amount of goods and services denoted by G. The perfect system would be if the cardinals of subsets of M and cardinals of subsets of G are bijective. Meaning that the amount of value in M is equal ( or with a slight +/- 2% divergence ) from G and vice-versa. And that they expand or shrink so that bijection is satisfied. That would completely eliminate any possibility of bubble creation or, for that matter, bust occurrences. I have largely over-simplified the mathematical explanation of this, but in short that is it. As i have stated before; this is simply unsustainable in every single way; mathematically, sociologically, philosophically etc. Of course the preferred currency would be asset-backed because that would practically eliminate the possibility of divergence in M, simply because it would be a non-abstract value ( non-manipulative )
Please see comment in ZH macroeconomic forum on Central Banking..no need to get high on math.
you did mean Meth?
No, only unless the need presents to be flying 48 hr straight combat missions. There is no other use for that poison.
I clearly meant that higher math is not necessary, arithmetic will do fine.
Don't forget where it all started, those all-singing, all-dancing German panzer crews.
Cantor set is not exactly higher math:
http://en.wikipedia.org/wiki/Cantor_set
However, I am not sure as to how this concept would apply here.
apologies, meant to say Cantors set THEORY ( my bad, lack of sleep is getting to me )
i don't need a lecture on the role of central banks, or their policies trough history; nor do i wish to ( again ) analyze them. I'm merely offering a proof of temporal unsustainability of the current system via mathematics. and only two requirements need to be satisfied, and those are the two i have mentioned above. I practically know what there is to know about the history of central banking, but my goal is to ( and I'm slowly achieving it ) to provide mathematical proof which would stop all possible bubbles and busts. but thank you, i will read the links and maybe i find something i have missed, or not even being introduced to yet.
So then when bijection is no longer satisfied by a massive divergence between M and G, due the government interference through misguided monetary policies... then clearly a new equation must be developed to accomodate the bubble creation/bust cycle and the significance divergence that continually exists in the equation.
symmetrical bijection ( meaning N(G) -----> N(S)=N(S)----->N(G)) is crucial in achieving long term stability. if the system ( as the monetary system is ) is temporal function of action can be introduced to the equation to insure more strictly that the bijection is satisfied. I mean, i don't want to go deep into mathematics here, but the solution is there, it provides long term sustainability and there is no need for significant social adjustment. but the only thing that is " innumerably infinite " here is human greed, and the only cardinal that can not be measured here is human nature. of course it would be good, but not necessary that the elements of subsets also satisfy bijection. ( the letter N here represents the Hebrew symbol Aleph which is used to denote cardinals )
To your point of the causal relationships between M and G, this goes right back to the classic debates over the monetary transmission mechanism problem and the validity of the quantity theory of money.
First, whenever central banks pump money into the economy, the modern transmission mechanism operates such that the money flows through to the banks first, then through a complex portfolio adjustment process, going through various interest-rate channels and affecting a wide range of assets and expenditures.
During this period, asset portfolios tend to undergo various shifts, which in turn induces prices and yields of existing financial and non-financial assets relative to prices of current services and new assets. These asset price and yield changes, in turn, generate changes in the demands for service flows and new asset stocks and hence in the prices and output of latter items.
The portfolio mix today is quite different to the simple days of stocks, bonds, and cash. In today's brave new world of structured finance, we have all types of different financial instruments.
Second, with regards to bubbles, the issue is not so much about maintaining the balance between the money supply and supply of goods and services; rather, it is about the comparative values of these goods and services. That is, if house prices go up in value, but income does not, there is an imbalance (after all, wages are prices).
And herein lies the problem: The only way to maintain a steady-state is if there is a flow through the entire system. However, if the money does not spread out evenly across the spectrum of all available goods and services, bubbles will form. In today's monetary system, these bubbles are inevitable because of the existing transmission mechanism.
Very insightful... enjoyed reading your take on the conversation... "In today's monetary system, these bubbles are inevitable because of the existing transmission mechanism."
Silly humans. Thinking it takes "complex" mathematics to explain the situation. All it takes is basic (input/outputP math in conjunction with the fact that we are merely part of a closed system (planet Earth). Complex math, bah!
Cheeky,
I usually am "right there" with most of your commentary, but the "dark ages" one is something I'll have to pass on.
I'm an optimist. That doesn't mean I think we will magically fix all that is wrong with the economy tomorrow by printing cash....but it does mean that the human spirit usually has a way of overcoming the difficulties it is faced with.
Now if the "dark ages" you refer to are a partially Socialist/Government controlled society that begins in the next 6 months, I may be inclined to agree a bit. Certainly this is where we are headed - and government controlled economies have a funny way of killing human spirit temporarily.
But when the breakout comes, it's usually pretty substantial - and one will come. The nasty government we're currently faced with will ultimately collapse upon its own lies (just as McCain's would've if HE'D been elected), and people of reason (or insanity) will begin to take over.
But I think we'll come out OK in the end. I believe people of reasonable thought and action are available to step forward and fix things once the nitwits in Washington impale themselves on their ridiculous behavior.
20 or 50 years!?!?!
You think this system can sustain itself that long?
no, in my opinion it cant sustain itself for 20 months, that was just an example
Harpers had an article on our bubble/bust economy a year and a half ago: http://www.harpers.org/archive/2008/02/0081908
Like Taibbi in his GS article, they also predict that the next bubble will come from some sort of green economy boondoggle. With the passage of the cap and trade legislation, the same rats are positioning themselves to profit already. Here's one example - last year Stephen Payne came under fire when his lobbying firm Worldwide Strategic Partners was caught basically soliciting bribes on videotape. The money guy for that operation was a Goldman Sachs alum named Gary Heinz. Heinz is now working for an outfit called Spencer Clarke which touts itself as an investment banker for the alterntive energy sector: http://www.spencerclarke.com/pdf/Summer2007NL.pdf They also mention the fact that they have access to several shell companies to help their clients get off on the right foot.
Do some searching and you'll find many many more examples of the same bad actors positioning themselves to rob us blind on the next big green bubble they've got in the works.
Idiot. Do you know how marxist this line is? Roughly, for a Marxist, a capitalist economy goes through bigger and bigger booms and busts until a massive bust destroys the system and lays the ground work for socialism and then communism.
GET AN EDUCATION!
Another idiot post from guy who doesn't read his Marx. Funny thing is Cheeky just wrote one of the most classically marxist statements on this site. For an old school marxist, the boom and bust cycle is inextricably linked to the functioning of capitalism. With the advancement of capitalism, the boom and busts get more and more dramatic until the final one that collapses the system. In the wake of the destruction is socialism and then the final transition to communism.
So if you are an old school marxist, any thing that makes capital move faster is wonderful.
GO HIGH FREQUENCY TRAINING YOU ARE LEADING US TO A CLASSLESS SOCIETY!
There has been and will never be a classless society. Any representation to the contrary is a lie or fantasy. Undiluted individual initiative is the best we as social animals can perfect. Be the change you wish to see. Take back your neighborhoods, walk your streets, greet your neighbors, learn to barter. There is little more necessary or cost-efficient than simple actions. Your cash is your real vote. Guns and ammo investor types..please self-inflict first.
i have red Marx ( not willingly ) and, yes part of what i wrote in the previous posts is coming from him; but i neither support communism nor have any greater opinion of it;and what Marx did is that he simply out the terms into the frame of Hegelian dialectics of, not spirit, but matter; nothing innovative there; but he was also a fool, for thinking that dialectical flow can come to an end with worldwide establishment of communism. I have wrote about that here numerous time, and i don't feel the need to go, once again, trough writing about the idiocy of those who said that history is either finished or will finish.
nvmd, i know who flagged me; hes just pissed off i disproved him a couple of days ago,on a thread about FED purchasing T-Bonds.
Gerald Celente already named the next bubble -bailout bubble, aka, the mother of all bubbles and the final bubble for all and end all. The bailout bubble, according to Celente, will burst before 2012.
The end is near. Be afraid, be very afraid.
I like the rule of 70 for working out whether anything exponential is sustainable.
If everyone were to invest for a nice 7% pa return, then their investment would double every ten years.
Yikes! So all industry, housing etc would need to double then every ten years.
Yeah, good luck with that, but that's what we are living. Oh wait? Everyone's pensions depend on a 7%+ return. Hahahahahahahaha!!!!!!!!
Very interesting... no wonder I am drawn to Art Cashin, Bill Fleckenstein and their grey haired brothern for analysis on the stock market...
Basically, I think what the author is saying is that investors believe that the central bankers of the world have removed all systemic risk from the system; in other words, investors believe that any future shock to the system will be backed by money creation policies of the world's central banks; "they" have our back. This will work until it doesn't.
thetechnicaltake ; a question; i am not in the financial world, but I'm interested, do the people who write papers like this one, need to satisfy the requirement of scientific rigour when they write them; or they can just go ape shit insane and write which ever fairy tale they feel like ..
Or in the vernacular, do they put their money where their mouthes are?
Leadership. Morals. Backstopping mortgage-backed securities of Martian real estate with taxpayer funding.
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And then once it doesn't work...
The governments used to be somewhat external to the process of boom and bust... acting to soften the blow through various monetary policies. However with this new paradigm of fusing of the government with big business through explicit guarantees and massive cash infusions... the next 'bust' will likely rock the world... because now governments will have significant monetary exposure to the 'bust' through their incestuous relationship with 'too big to fail' companies.
Reinflating the bubble just means more fraud, lies and rip-offs. Why don't they disconnect Wall St. from the rest of the world and let them play their virtual game with virtual fed money? If you don't let them out of Manhatten during the week and enclose them in the Hamptons in the weekends they will never notice that they have been disconnected from the rest of the world.
That is why there are lots of solicitations to invest in TALF funds that are levered 10 to 1, to buy dreck off banks at inflated prices. Win win, in'it? Once the banks shift overpriced securities onto retail investors who aren't TBTF, Bernake and Geithner can remove price supports and let the prices of the securities fall, and Barney Frank can let mortgage workout proposals roll through Congress that further reduce the value of the CDO's and such.
Don't forget to check my comment to you re ubs settlement on Tyler's sunday readings post.
Collapse in demand is in the saddle and rides mankind.
Deleveraging will not be denied.
Those who don't know history are bound to repeat it.
History doesn't repeat but it does rhyme (Twain)... Tick... Tock... Tick... Tock... Tick... Tock...
Unfortunately, even those who DO know history are bound to repeat it, because they live in a political system that is absolutely corrupt.
The salient point remains that values quickly return to the baseline. It's just a roundabout way of "proving" "liquidity" does not create prosperity.
The argument that raw liquidity will now propel the market, introduced right at the point where very few seem able to argue valuations or earnings will do the job, seems awfully convenient.
Hmmm...
The "bubble/burst" cycle is essential to the growth of our economy. You people have wool pulled over your eyes. Let me spell out the *actual* process for you:
Phase 1) Bubble: Everyone, including your mother, has invested in the latest bubble whether it be stocks/housing/oil or some other scheme.
Phase 2) Burst: People with inside knowledge (i.e. wealthy people) get out "just in time" before the burst. In essence, wealth is transferred from your mother to the rich.
Phase 3) Growth: The rich reinvest their new found wealth into the economy. This is what is called "trickle down" or "supply side" economics. You see, the rich are much more efficient at reinvestment than your mother. Therefore, the economy experiences true growth.
Phase 4/1) The trickle-down wealth is reinvested in Phase 1.
So that's that way it is, in laymen's terms. There is no denying this fact. If it were not true then why does the bubble/burst cycle keep happening? It keeps happening because it benefits everyone, including your mother.
-- Phil
Phil,
I am so glad you are back... your 'thorough' assessment of the situation is much appreciated on a Sunday morning. I am surprised you weren't on Meet the Press this morning to offer your 'spot on' thoughts over the true benefits that the bubble/bust cycle offers the American people.
I hope you show up more often... I really enjoy your take on the world.
Also because monetary "policy" lets money run like the Mississippi during any burst phase and then cuts it back to a stream during the bubble phase - and the policy always has a lagging effect on the markets. I believe this is more the cause of the above happening. Mother doesn't know dams have been put up. Just look at any money supply/interest rate chart and compare it to the stock market.
You cannot continue to rob the "serfs" to fund the "elites." There is always an end-game.
It's closer than you think.
Agreed. Moral hazard offers no hazards if the rewards keep coming and all risks and negative consequences of being professionally warped are foisted off upon those who dare to trust.
Leadership. Morals. Backstopping mortgage-backed securities of Martian real estate with taxpayer funding.
What is fair value?
I have read (S+P) , 1000, 880, 850 as FV, and we currently are 145x p/e?
What is fair value? I have read (S+P) , 1000, 880, 850 as FV, and we currently are 145x p/e?
People can price individual equities. Only analysts young enough to think they know everything think one can value the entire market. And maybe math-heads who believe concepts like "alpha", "beta", "VAR", and sharpe are useful for anything other than touting products to sheepish investors.
Even in the tech bubble the PE ratio wasn't close to 145x.
Here the chart showing the PE ratio of the past. It hasn't been updated. The current PE ratio is over 145.
http://www.chartoftheday.com/20090522.htm
This chart and the one referenced therein (the earnings chart) is just like that Federal Reserve Chart H3 I passed around the office last August. That one said that, but for borrowed reserves, the banks were broke. This one says that the stock market is at a horrendously unsustainable high, at least 300% of where it should be. If there is no "V", and I think that is fairly evident absent some miracle, then the market must fall - and the insider sales tell you that many are heading for the exits. Not if, but when.
eventually the gap between the haves and the have nots will revert back to the mean. and that process will not be pretty. in the words of the original joker, "this town needs an enema!"
You can't blow a bigger bubble the the housing credit. This is the biggest bubble you can blow and once it popped like it did the only path is downward.
BTW the market isn't fair value. It is over valued by a large margin. I think most people would agree.
This piece is 10 weeks old and was put out just about halfway through the current rally.
This echo-bubble will last another month at most and put in only a marginally higher high than we've seen. In the 4th Quarter, this bloated pig of a market will be heading back down in a meaningful way.......
Thanks for putting it on the right time line perspective... because this pig does need head back down... and soon... I am tired of talking about 'when it will happen'... it simply just needs to happen.
Any history buffs know if the US has ever had two bubbles back to back before? And given that lowering the interest rate to zero is how Greenspan got the housing asset class to bubble up, what asset class is going to be this bubble: the entire equity market?
What I mean is: the Internet bubble had a seemingly valid storyline, that the net was going to transform retail in ways never before imaginable, so buy tech stocks. The housing bubble's storyline was basically that they aren't making any more land, and housing has hardly ever gone down in price (it sure has now!).
What's the storyline reason that we should see the markets keep going up at this point? That we are to assume that the US Government has finally perfected techniques to deflect and reverse any mistakes made by banking entities? Or how about: a complete faith that the new global economy doesn't need even need the US consumer, that as long as one country (China) can take its surplus and reverse course, then we are all saved... even if people are becoming destitute here at home...??
I think that there are hundreds of hedge funds and pension funds and other market makers participating in this rally because they feel they have to chase it for the benefit of their constituents... but they are all looking nervously at the other participants, and they are all ready to push the big red "sell sell sell" button the moment any of the others flinches... Tom
Let me see if I can break it down a little
Monkey See, Monkey Do - OR - Stupid is as Stupid does – Take your pick
http://www.businessinsider.com/the-vix-is-broken-2009-8
Give a monkey in a suit money and he will revert to doing with it the only thing he knows to be true based upon experience or what he believes to be true through observation.
Case in point;
Give a Regional banker 1 billion dollars – Chances are he will run down the street trying his hardest to make loans at the highest rate he can justify to the loanee.
Give a Investment Banker 1 Billion Dollars – Chances are that he will run down to Wall Street and invest it into the stock markets seeking to get the highest return he can from the best leveraged investments he can find.
Give a wino on the street 10 dollars – Chances are he’s going to run down the street and invest the ten dollars on the most liquor he can get …even if it tastes like MD 20/20.
Now – UP the stimulus money on the monkey!
Regional Banker = 100 Billion - Chances are he’ll still try and make the loans as before and still won’t know what to do with the remainder since he’s never had that much remainder before. He begin to look around at what the other monkey’s are doing with their remainder and fall in line as he does not want to look like a monkey.
Investment Banker = 1 Trillion dollars – Chances are that he will still run down to Wall Street and invest as much as he can. What he can not use up he will look around and see what other Investment monkeys are doing with their extra and follow them into Derivatives, CDO’s and other markets he does not understand, because he does not want to look like a monkey and miss out.
Wino = 1000 dollars – Chances are he’ll still run down the street and buy a bottle, maybe he’ll celebrate buy buying his buddies a bottle of MD 20/20 this time. He looks around and sees his other wino friends do nothing with money since they have very little, SO…. since he does not know what to do with the rest he hides it in coat pockets and shoes. Saving it for more MD 20/20 purchases in the future.
Why do all these monkeys do what they do???
Because it is all they have been taught, learned by doing, or observed in their respective worlds. They only know what they know and nothing more.
Don’t over analyze the monkey – He is a very simple thinker.
Simple thinker? How about stupid? Stupid works to describe all this. Maybe the built-in flaw of a particular empire is the fact that stupid is as stupid does, and on the way up, stupid doesn't matter, but once you peak, stupid is very dangerous.
seems like the authors (and SG) were in search for something to justify a positive spin......
its all BS
"If it were not true then why does the bubble/burst cycle keep happening?"
Because people in our dumbed down society are pretty damn stupid.
Interesting article. Where do you find this stuff?
So I guess it takes getting burned twice before everyone catches on.
So then do you feel the recent rise in the Shanghai is another bubble... and was it intentionally created...
People just plain insist on having conversations on the whichness of what -- essentially declaring "It really is different this time" and then proceed to talk about 20 yrs or 30 yrs or 50 yrs.
I just do not know what it is going to take to get through the minds of people that there is a NEW DEFAULT IN TOWN. If you believe oil is infinite, then go ahead and talk about 20 or 30 or 50 years. If you believe it is finite, then you are obligated from intellectual honesty to pick a year when its price becomes prohibitive for use. After you do that, then you have to come to terms with yourself and recognize that there IS NO SUBSTITUTE today and to believe that there will be one is to base all your future economic pontification on the back of a horse that doesn't exist this moment and may never exist.
Once you get your mind wrapped around these things, then start with 30-40% global starvation and begin your economic pontification from that premise -- which is the most probable one.
People just plain insist on having conversations on the whichness of what -- essentially declaring "It really is different this time" and then proceed to talk about 20 yrs or 30 yrs or 50 yrs.
I do not know what it is going to take to get through the minds of people that there is a NEW DEFAULT IN TOWN. If you believe oil is infinite, then go ahead and talk about 20 or 30 or 50 years. If you believe it is finite, then you are obligated from intellectual honesty to pick a year when its price becomes prohibitive for use. After you do that, then you have to come to terms with yourself and recognize that there IS NO SUBSTITUTE today and to believe that there will be one is to base all your future economic pontification on the back of a horse that doesn't exist this moment and may never exist.
Once you get your mind wrapped around these things, then start with 30-40% global starvation and begin your economic pontification from that premise -- which is the most probable one. That's the basis for future projections. Starvation. Now then. Compute your various GDPs and CPIs with a starving population. How does that work out?
I have am forever pissed off with the use of the term Moral Hazard. I’ll hear PrezO or Hank the Tank say……Oh, that’s a moral hazard!......They don’t know what morality is!……That’s a moral hazard……It’s more accurate to directly substitute word phrases of Either “consequences of poor decision making” Or “fuck ups”.
Example: Forever blowing bubbles: consequences of poor decision makings and melt-up.....OR....Forever blowing bubbles: fuck ups and melt-up.
I asked Bob Dylan about morality; this is what he said: "Some say you can't legislate morality. Well, maybe not. But morality has gotten kind of a bad rap. In Roman thought, morality is broken down into basically four things. Wisdom, Justice, Moderation and Courage. All of these are the elements that would make up the depth of a person's morality. And then that would dictate the types of behavior patterns you'd use to respond in any given situation. I don't look at morality as a religious thing." [From Rolling Stone Issue 1078 - May 14, 2009]
good point
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Is that S&P chart in the article gold weighted , inflation weighted or bouth ?
Is that S&P chart on the article gold weighted, inflation weighted, or bouth?
Perhaps the Mayans were right, 2012 might just be the end of the financial world/age/aeon blah blah blah...
Bubbles are dependent on the psychological delusion that "everything is different now", that economic fundamentals no longer apply. In 1999, during the tech rally, I talked to a Schwab rep., and gave him the old line, "The trees don't grow to heaven." He said, "Yes, but with the new tech, it's as if the ground under the trees is rising." (I was 80% cash when it popped.) The idea that the Fed./Treasury have our back will be the delusion that drives this rally. Cheeky guessed 20 months. After looking at Tech-Takes jumbo charts (thanks, by the way!) I'm thinking less. Mathematics wants to transform economics into a science, but messy psychology makes it art. Reality is the hallucination we share with our neighbors. Howdy neighbors. (57)
Bubbles are dependent on the delusion that "everything is different now", that the laws of economics no longer apply. The feeling that the Fed./Treasury have our backs will be the delusion that drives this rally. In 1999, I talked to a Schwab rep. about the tech rally and offered him the old German line "The trees don't grow to heaven." He said, "Yes, but with the new tech it's as if the ground under the trees is rising." (I was 80% cash when it popped.) Cheeky thinks maybe 20 months. After seeing Tech-Takes jumbo charts (Thanks, by the way!), I'm thinking sooner. There are some brilliant mathematicians on this site, and mathematics is always trying to transform economics into a science. But messy psychology makes it art. Reality is the hallucination we share with our neighbors. Howdy neighbors.
Love it... Reality is the hallucination we share with our neighbors.
In the paper referred to by the research note, the subjects in the experiments know the possible states of the world, the probabilities of those states, and the payoffs in each state. It is surprising that bubbles form in this scenario where it is trivial to calculate an asset's fair value. So I guess one could conclude that markets have a propensity towards bubbles, but the fact remains that our markets are characterized by true uncertainty about the future and the fair value of equities. It is difficult, if not impossible, to even identify a bubble. You have people that are certain that the market is going higher due to an economic recovery and others (such as many posters on ZH) that are certain that we are in a bubble about to burst. I'm just surprised by how confident people are one way or the other.
From the article: ""I have long used a Minsky/Kindleberger framework for thinking about the inflation and deflation bubbles. This process ends in revulsion, when everyone has given up hope on the asset class in question. However, in the past, US authorities have short circuited the process and avoided sliding into revulsion via monetary and fiscal policy response."
This is exactly what I've been saying. We were robbed of capitulation, by an interventionist Fed which needed to live up to its reputation of blowing yet another bubble on top of the past collapsing one. An entire generation of otherwise-intelligent adult investors grew up and live in an environment where "Don't Bet Against The Fed" is the paradigm. It will take Fed failure to break the paradigm. If the Fed fails this time, and I believe they will, the key artifice of modern government fails along with it. They will not go gently.
"But it certainly seems as if many market participants are now focusing upon the policy response as a key source of optimism."
The paradigm lives on. Until it doesn't.
Now, on to the comments!
CB: "the only basis on which this system can function is a bubble-bust one."
You may be correct. There ARE things we can do to minimize the size of bubbles, which helps recovery time.
MinnesotaNice: "…but the more we use massive amounts of leverage with a focus on accumulating wealth... the more frequently we will see massive bubbles."
I agree; though leverage isn't required I'm sure it helps, shortens the cycle, and makes the bubble bigger. This last one would have deflated awhile ago, but the Fed kept adding liquidity and the regulators kept raising leverage limits. See also "Marginal Utility of Debt"; I think the diminishing marginal utility of debt over time is due to increased leverage.
Andy D: "Money supply is very different than credit growth i.e. money ain't credit. The central bank should target credit growth to stop bubbles. Good luck with the idiots that are running it today...But since we have regulatory capture by squids and other creatures, they will not give up the bubbles they profit from very easily. Self-destructive? Sure. Short-sighted? Absolutely. But the only way to get quickly to them Hamptons. Not a good way to stay there though...
Actually, and this is one of the problems, it IS a good way to get to the Hamptons AND stay there. If you are the one blowing the bubble, you know when to cash out. Fuck everybody out of their money, then cash out and slink away to some enclave where wealth is the only thing admired. Any of us here could name names from current events. This is why the people who control the government / banks like the current system; it provides them an opportunity to get rich at everyone else's expense. They LOVE moral hazard; it backstops their gambling. Bribing legislators is merely a cost of business to them.
Moral Hazard can be traced directly back to central banks. Bubbles can be traced to moral hazard and leverage. Acceptance of leverage can be traced to the acceptance of the popular form of fraud known as "Fractional Reserve Banking".
Hey Mr moderator...why are you not publishing my posts ?
"In today's monetary system, these bubbles are inevitable because of the existing transmission mechanism."
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To be quite frank. The article sounds like a justification as to why prices can go higher. Just another sell-side analyst selling you the market.
Let me repeat, fundamentals matter and they matter a lot. It is true we could have a very temporary reflation of stocks and commodities, however this cannot translate into the general economy because the leverage ratios are already at all time highs. That said, these same leverage ratios imply that reflation will have to be curtailed at one point. Forget about the Fed, market interest rates will go up and collide head on with those high leverage ratios. When will this occur? That is the trillion dollar question. My guess is that within the next three months, but I can see a case for it being dragged along two years or so.
- Market can remain irrational longer than one can remain solvent
- Investors forget the mistakes they have done in the past and repeat them. But usually they dont repeat the most recent mistakes they have committed as these will be in their memory.