While the divergence between macro data 'dismalness' and equity price exuberance is by now well known, there is a greater threat looming to the rampapalooza that is underway. As forward Price-to-Earnings ratios have soared in the last year (aided and abetted - as Alan Greenspan explained - solely by The Fed's largesse) so bottom-up earnings growth expectations have cratered. So much so that veteran stock market investors and traders now see the divergence between multiple 'hope' and growth 'reality' as "ridiculous." Just how ridiculous? Worse than 1987, 2002, and 2011, when stocks fell over 20% upon realization of reality.
Greenspan: "The Stock Market Is Great", But The Economy Feels Like In "The Late Stages Of The Great Depression"Submitted by Tyler Durden on 02/26/2015 22:10 -0500
While conflicting economic data leaves hope for both buills and bears, Alan Greenspan warns that, unlike Yellen, "US economic growth is not strong." The maestro then breaks the golden rule of central bankers and explains how The Fed was, in fact, the main driver of the P/E multiple expansion in stocks; and when asked if this ends as badly as last time? He concludes "It depends...When real interest rates start to move up, that's when the crisis could hit," concluding with a warning that global "effective demand is extraordinarily weak - tantamount to the late stages of the great depression."
Janet Yellen is very alarmed that some members of Congress want to conduct a comprehensive audit of the Federal Reserve for the first time since it was created. During testimony this week, she made “central bank independence” sound like it was the holy grail. Even though every other government function is debated politically in this country, Janet Yellen insists that what the Federal Reserve does is “too important” to be influenced by the American people. Does any other government agency ever dare to make that claim? If the Fed is doing everything correctly, why should Yellen be alarmed? What does she have to hide?
As a frequent contributor to Bloomberg, I would welcome the opportunity to debate this with Barry.
What say you @ritholtz ? : )
With more than 60 percent of all Americans are living paycheck to paycheck, and a whopping 24 percent of the country has more credit card debt than emergency savings, when the coming economic crisis strikes, more than half the country is going to be financially wiped out within weeks. If you are trusting in the government to save you when things fall apart, you will be severely disappointed.
While there are many that suggest there is "no bubble" in the financial markets at the current time, a simple look at the extreme elevation of prices over the last couple of years is eerily reminiscent of the late 90's. Given the very elevated levels of investor bullishness, margin debt and complacency, there is more than sufficient evidence that a mean reverting event is highly likely at some point. However, at the moment, the perceived "risk" by investors is "missing the run" rather than the potential destruction of capital if something goes wrong. This is the opposite of what "risk" management is about...
When, amid the plunging stock market in October as we neared the end of QE3, Jim Bullard said QE4 was possible; not only did markets then undertake the longest and most consistent streak of gains in history, he appears to have entirely changed the market's reaction function to data...
Alan Greenspan Warns: There Will Be a “Significant Market Event... Something Big Is Going To Happen”Submitted by Tyler Durden on 02/23/2015 05:15 -0500
"We really cannot exit this [era of QE and ZIRP] without some significant market event... The end has to come at some point... Gold will go measurably higher... In any market that is so one sided, that is accelerating so rapidly, that trend will end… it will most likely end in a fairly violent fashion."
Government mandated fiat currency simply does not work in the long run. We have empirical evidence galore – every fiat currency system in history has failed, except the current one, which has not failed yet. The modern fiat money system is more ingeniously designed than its historical predecessors and has a far greater amount of accumulated real wealth to draw sustenance from, so it seems likely that it will be relatively long-lived as far as fiat money systems go. In a truly free market, fiat money would never come into existence though. Greenspan was wrong – government bureaucrats cannot create something “as good as gold” by decree.
The major sudden bear markets of the last decades were not dreaded “black swan” events at all. They were perfectly predictable, by economic logic alone, the same logic that says governments cannot manipulate market prices without creating distortions that will always, without exception, be counterproductive. In the next stock market crash, we will be told that the fault was some surprising economic or geopolitical shock. Let’s remind ourselves now that this will be false.
We are living in an era where a single statement of truth will drive a pin into the global bubble of phantom assets and debts, and the lies spewed to justify those bubbles.
We have put the sociopaths in charge, in an international and largely anonymous dictatorship. Who really pulls the levers in the IMF, or NATO etc? We have no way of knowing. And that’s the problem. And that is what Syriza, and precious few besides them, are set to fight. And why they deserve – and need – our support. Because if they don’t win, we don’t.
“In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings.” Aristotle (?2,400 years ago)
“Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” Alan Greenspan (2014)
Alan Greenspan: "Greece Will Leave The Eurozone" And "There Is No Way That I Can Conceive Of The Euro Continuing"Submitted by Tyler Durden on 02/08/2015 12:03 -0500
"Greece will leave the Eurozone. I don't see that it helps Greece to be in the Euro, and I certainly don't see that it helps the rest of the Eurozone. It's just a matter of time before everyone recognizes that parting is the best strategy.... The problem is that there there is no way that I can conceive of the euro of continuing."
Overview of the investment climate