This Time Isn't Different
Submitted by Jim Quinn via The Burning Platform blog,
Last year ended with a whimper on Wall Street. The S&P 500 was down 1% for the year, down 4% from its all-time high in May, and no higher than it was 13 months ago at the end of QE3. The Wall Street shysters and their mainstream media mouthpieces declare 2016 to be a rebound year, with stocks again delivering double digit returns. When haven’t they touted great future returns. They touted them in 2000 and 2007 too. No one earning their paycheck on Wall Street or on CNBC will point out the most obvious speculative bubble in history. John Hussman has been pointing it out for the last two years as the Fed created bubble has grown ever larger. Those still embracing the bubble will sit down to a banquet of consequences in 2016.
At the peak of every speculative bubble, there are always those who have persistently embraced the story that gave the bubble its impetus in the first place. As a result, the recent past always belongs to them, if only temporarily. Still, the future inevitably belongs to somebody else. By the completion of the market cycle, no less than half (and often all) of the preceding speculative advance is typically wiped out.
Hussman referenced the work of Reinhart & Rogoff when they produced their classic This Time is Different. Every boom and bust have the same qualities. The hubris and arrogance of financial “experts” and government apparatchiks makes them think they are smarter than those before them. They always declare this time to be different due to some new technology or reason why valuations don’t matter. The issuance of speculative debt and seeking of yield due to Federal Reserve suppression of interest rates always fuels the boom and acts as the fuse for the inevitable explosive bust.
In 2009, during the depths of the last crisis that followed such speculation, economists Carmen Reinhart and Kenneth Rogoff detailed the perennial claim that feeds these episodes in their book, This Time is Different:
“Our immersion in the details of crises that have arisen over the past eight centuries and in data on them has led us to conclude that the most commonly repeated and most expensive investment advice ever given in the boom just before a financial crisis stems from the perception that ‘this time is different.’ That advice, that the old rules of valuation no longer apply, is usually followed up with vigor. Financial professionals and, all too often, government leaders explain that we are doing things better than before, we are smarter, and we have learned from past mistakes. Each time, society convinces itself that the current boom, unlike the many booms that preceded catastrophic collapses in the past, is built on sound fundamentals, structural reforms, technological innovation, and good policy.”
“The essence of the this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are something that happen to other people in other countries at other times; crises do not happen, here and now to us… If there is one common theme to the vast range of crises we consider, it is that, excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom.”
The third speculative boom in the last fifteen years fueled by Federal Reserve idiocy is about to become a the third bust in the last fifteen years. The unwashed masses who believe what they are told by CNBC are going to be pretty pissed off when they lose half their retirement savings again. None of their highly paid financial advisors are telling them to expect 0% returns over the next twelve years, but that is their fate. The numbers don’t lie over the long haul.
My view on “this time” is clear. I remain convinced that the U.S. financial markets, particularly equities and low-grade debt, are in a late-stage top formation of the third speculative bubble in 15 years. On the basis of the valuation measures most strongly correlated with actual subsequent market returns (and that have fully retained that correlation even across recent market cycles), current extremes imply 40-55% market losses over the completion of the current market cycle, with zero nominal and negative real total returns for the S&P 500 on a 10-12 year horizon. These are not worst-case scenarios, but run-of-the-mill expectations.
Hussman recently saw the brilliant take down of Wall Street – The Big Short – and thought it was a highly accurate portrayal of the rampant criminality of the Wall Street banks. They created fraudulent mortgage products, doled them out to suckers, and created complex toxic derivatives, selling them to clients while shorting them at the same time. Hussman’s only problem with the movie was that it left the true villain off the hook with nary a mention. Wall Street could not and would not have created the trillions of fraudulent products if the Federal Reserve had not kept interest rates at 1% and had performed their regulatory obligations of overseeing the banks.
The answer is straightforward: as the bubble expanded toward its inevitable collapse, the role of Wall Street was to create a massive supply of new “product” in the form of sketchy mortgage-backed securities, but the demand for that product was the result of the Federal Reserve’s insistence on holding interest rates down after the tech bubble crashed, starving investors of safe Treasury returns, and driving them to seek higher yields elsewhere.
See, the Fed reacted to the collapse of the tech bubble and the accompanying recession holding short-term rates to just 1%, provoking yield-seeking by income-starved investors. They found that extra yield in seemingly “safe” mortgage securities. But as the demand outstripped the available supply, Wall Street rushed to create more product, and generate associated fees, by lending to anyone with a pulse (hence “teaser” loans offering zero interest payments for the first 2 years, and ads on TV and radio hawking “No income documentation needed! We’ll get you approved fast!”; “No credit? No problem! You have a loan!”; “Own millions of dollars in real estate with no money down!”). The loans were then “financially engineered” to make the resulting mortgage bonds appear safer than the underlying credits were. The housing bubble was essentially a massive, poorly regulated speculative response to Federal Reserve actions.
And now the Fed has done it again. The stock market on most valuation measures is the most overvalued in world history. The rolling tsunami is about to wipe away the life savings of millions for the third time in fifteen years.
The current, obscenely overvalued QE-bubble is simply the next reckless response to Federal Reserve actions, which followed the global financial crisis, which resulted when the housing bubble collapsed, which was driven by excessively activist Federal Reserve policy, which followed the collapse of the tech bubble. As my wife Terri put it “It’s like a rolling tsunami.”
The pompous professionals inhabiting the gleaming skyscrapers in the NYC financial district are still arrogantly ignoring the imminent bust headed their way. The Fed juiced gains over the last six years will evaporate just as they did in 2007-2009. Cheerleading for and denying the existence of the bubble is a common them among those whose paycheck depends upon them doing so.
One had to suffer fools parroting things like “being early is the same thing as being wrong” until the collapse demonstrated that, actually no, it’s really not. The 2007-2009 collapse wiped out the entire total return of the S&P 500, in excess of risk-free Treasury bills, all the way back to June 1995.
Since two crashes weren’t enough to teach the lesson, here we are again, at what’s likely to be seen in hindsight as the last gasp of the extended top formation of the third speculative bubble in 15 years. The median stock actually peaked in late-2014.
And now for the bad news. At current market valuations, a run of the mill bust will result in a 50% decline. A bust that puts valuations back to 1982 bear market lows would result in a decline exceeding 75%. Whether it is a violent collapse or long slow decline, there is no doubt that returns over the next decade will be non-existent. This is not good news for Boomers or GenX entering or approaching retirement.
For the S&P 500 to lose half of its value over the completion of the current market cycle would merely be a run-of-the-mill outcome given current extremes. A truly worst-case scenario, at least by post-war standards, would be for the S&P 500 to first lose half of its value, and then to lose another 55% from there, for a 78% cumulative loss, which is what would have to occur in order to reach the 0.45 multiple we observed in 1982. We do not expect that sort of outcome. But to rule out a completely pedestrian 40-55% market loss over the completion of the current cycle is to entirely dismiss market history.At present, investors should expect a 12-year total return from the S&P 500 of essentially zero.
The reckless herd has been in control for the last few years, but their recklessness is going to get them slaughtered. Corporate profits are plunging. Labor participation continues to fall. A global recession is in progress. The strong U.S. dollar is crushing exports and profits of international corporations. Real household income remains stagnant, while healthcare, rent, home prices, education, and a myriad of other daily living expenses relentlessly rises. The world is a powder keg, with tensions rising ever higher in the Middle East, Ukraine, Europe, and China. The lessons of history scream for caution at this moment in time, not recklessness. 2016 will be a year of reckoning for the reckless herd.
There’s no question that at speculative extremes, recent history always temporarily belongs to the reckless herd that has ignored concerns about valuation and risk at every turn. Fortunately, the future has always belonged to those who take discipline, analysis, and the lessons of history seriously. Decide which investor you want to be.
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I certainly hope so.
I set my cattle prod to full charge...Now in search of a sensitive rectum...Gartman, where are you?...I want to do a test shot.
This world is sooo fucked, I just want to get this shit show going early. I am fucking tired of all this bullshit.
BTW, Fuck anyone whose last name is Bin Saud,
The reason it's different this time is that they know there's no coming back from the next crash. We will be Japan after that. Zero possibility of growth, nothing but endless debt as far as the eye can see.
The next crash will lead to war.
No one could have seen this coming.
Really? You forgot the /sarc. A big, fat, thanks to ZH for keeping it's readers out of this mess.
"Change you can beleeve in" on a Global Scale.
Moar "Hope & Change" on the way!
"Yes we can!"
....but this time IS different. I see his valuation parallels to 1982. in 1982 we were whinning about a $1 Trillion+ national debt, a non-existent EU, a forward look at HongKong being vacuumed up by China, and we didn't have a soft muslim invasion of the western world going on, etc, etc... The underlying variables today seem much worse than in 1982. How that translates into the stock market is something I don't pretend to know....but I do believe that our momentum will take us to places that that will leave us having unbelievable moments. The stock market is just one of the domino's...Wait for the subsequent implosion of every single retirement plan in the US.
Duh?! The stawk' market will do quite well if you are invested in the right sectors.
Here are my top 3 picks:
1. Large Industrial High Speed Printing Press Manufacturers
2. Ink. Buy lots and lots of ink producers stock.
3. Security cotton paper manufacturers
Nothing matters as long as derivatives live.
And hypothication.
This article was clearly written by the angrysinner dude!
Yesterday, the Dragon Lady prepared chicken and French bread for dinner. The meal was excellent. She really outdid herself. My wife even heated the bread in our magnificent Phillips air-fryer. I washed the vittles down with several glasses of genuine Coca-Cola.
Last year ended with a whimper on Wall Street. The S&P 500 was down 1% for the year, down 4% from its all-time high in May, and no higher than it was 13 months ago at the end of QE3.
I paid homage to the Christ God. I said the Lord's Prayer on bended knees. No big surprise. I'm not some filthy pagan.
The Wall Street shysters and their mainstream media mouthpieces declare 2016 to be a rebound year, with stocks again delivering double digit returns. When haven’t they touted great future returns. They touted them in 2000 and 2007 too.
I watched the season finale of The Knick. Thack performs surgery on himself in front of a crowded hospital theater. He cuts away at his necrotic bowels with a scalpel while looking in a large mirror. Unfortunately, he dies on the operating table.
No one earning their paycheck on Wall Street or on CNBC will point out the most obvious speculative bubble in history. John Hussman has been pointing it out for the last two years as the Fed created bubble has grown ever larger. Those still embracing the bubble will sit down to a banquet of consequences in 2016.
After being a victim of the 2008 subprime debacle I hunkered down and and learned as much as I could about what happened and why it happened. What is clear is that even with a huge Black Swan event looming in 2006 it took several years to fully manifest itself in the market only because all the participants continued to bet against the impending disaster until it was too late.
Many people keep predicting the next Black Swan event, but by their very nature Black Swans are virtually unpredictable and that's why they are so dangerous. I am an avid reader of ZH, but like others on this site I have changed my bearish viewpoints and don't believe impending disaster is around the corner (I'm not fully bullish either). Everything that is discussed here is known by the central bankers of the world and I'm sure they take all this stuff into account as they set policy to keep the world's economy 'growing'.
What is clear is that the Central Banks of the world WILL NOT ALLOW DEFLATION...even at the expense of the minions like me. The CB's will go to NIRP before they allow deflation, they will do more QE (to infinity) and they will use Bail-ins to protect their member constituents, the TBTF banks among others. They will do this until runaway inflation implodes the system or until there is a revolution which demands a reset. Personally, I think they can keep this shit going forever without the runaway inflation everyone is so concerned about.
Right now the CB's and the big financial institutions control our economy...they will do whatever it takes to keep things going and protect themselves. Will we see some corrections? Sure. Will we see the systemic implosion that many people on this site think is coming? I don't think so.
With that being said,the last time I let my guard down and accepted the 'new normal' I got my ass handed to me, so maybe I'm a lucky charm for all you pro-reset bears. Time will tell.
Modern equivalent = data centers.
what I want to know is what specific human beings / individuals get to spend the money made from the Federal Reserve? Who is living it up spending the 6% interest on every dollar?
But the sheeple are too stupid to know or contemplate these things...
Uh, 6% seems to ring a bell on what the Fed Bank stockholders are legally entitled to make off of us and personally keep.
We can thank Congress and President Woodrow Wilson (1913 )for signing the Act which included the 6% divy. I should be amended and dropped.
There is no market (anymoar).. there are only interventions.
http://gata.org/node/15855
oldie but a goldie……..
Fed Bank stockholders - What are their names and will they adopt me...
Joos.
Pretty simple really.
uhhh....did you watch that thing drop in NY on New Years? If it weren't for that 6% (or whatever the actual number is) all of manhattan would soon become a real life scene from "I Am Legend". (minus the genetically modified lions)
Massive Mid-East war and Obama pulls a Roosevelt
Reminds me of the old saying: "The More Things Change, The More They Stay The Same."
Interesting enlightenment on the FED here:
http://www.globalresearch.ca/who-owns-the-federal-reserve-bank-and-why-is-it-shrouded-in-myths-and-mysteries/5496873
He's as bloodthirsty as Roosevelt (and his wife).
https://en.wikipedia.org/wiki/Morgenthau_Plan
The idea was to exterminate the German race. That's all. The Wiki coverage sanitizes it.
Guess which tribe Morgenthau belonged to?
Apache ?
Happy New Year, NoDebt, You're one of my favorite commentators.
I have just one problem with your post, i.e., we will be Japan after the next crash. What makes you think we're not already Japan?
WWIII is being fought Covertly. The Covert Collapse is as well.
We already are in most ways. Just not the massive and persistent stock market decline. That's yet to come.
Thanks for the kind words.
We'll be Japan after this crash? Unlikely we'll come out of it so well. This one really could be the end.
It comes back after a monetary / debt reset. Is that possible without a large war? History says no.
Yep ND, they are floating down the Shit river in a leaky boat, excited to get an up close view of Toilet Falls, and the deep sinkhole, right after that.....
NoDebt:
The reason it's different this time is that they know there's no coming back from the next crash. Exactly.
We will be Japan after that. No. Worse. And the population totally unaware and unprepared.
Zero possibility of growth. No. Worse. Contraction because we live in a finite planet.
Nothing but endless debt as far as the eye can see. And it will only grow until TOTAL collapse.
We'll probably never get back to here before hyperinflation but there will be strong buying opportunities after stocks lose 80% of their value.
Rostislav Ishchenko interviewed on Syria and Novorossiya (MUST SEE!)http://thesaker.is/rostislav-ishchenko-interviewed-on-novorussian-tv-on-...
the cattle(fsa)are headed to the fenced in area where the government has promised their security. leave your guns behind. bring your cell phone. leave your mind too, because it will not be neccesary for what is in store for you - you fucking useless moronic liberal minded fuckhead...
upvoted for poetic language
Wooohoooo....down 383 at this second...it is like a waterslide...hold your legs together tight..
Quick ecit...now down 400... Hold on
PPT has been called..Green by end of session?
and my favorite line from CNBC...."At least we are off of today's lows" HAHAHAHHA
paging ppt paging ppt....paging ttp paging ptp...paging yellin..need rate cut need benny bucs etc etc
We are iced in here in Portland...so just sitting here watching CNBC...and hearing them try to spin todays disaster...very funny. As of this second...Dow Down 340 Wow... Buckle up. On the CNBC website it was posting the actual numbers... "Dow Futures Down 250" then they switched it to just say "Open down triple digits".
"We are iced in here in Portland..."
A perfectly predictable consequence of a failure to implement a carbon credit trading desk and the global climate change agenda. Hopefully, the BLM will be able to seize the Hammond Ranch before we all freeze.
Wait a minute! So you're saying this is due to transient weather conditions. I read ya!
FUCK cnbc...
Those asinine fucktards recently posted a laughable "Reasons Why Jamaica's Economy is Booming" - or some such shit.
Using the Jamaican stock exchange as their main reason - oh, and that S&P raised their ratings....they talked about Jamaica being a "leader" in bauxite mining (which has been dead for decades), and made it seem like the "average" Jamaican was doing fine.
99.9% of Jamaicans do NOT invest in their stock market. 99.9% of Jamaicans live hand to mouth.
Fucking laughable...
cnbc is for idiots.....mute the sound...the data is OK..but ignore the stupid headlines...written by some back stage asshole...
"cnbc is for idiots.....mute the sound...the data is OK..but ignore the stupid headlines...written by some back stage asshole"
Relax. No one really watches CNBC any more. viewership plunged after the 2008-2009 crash and never recovered. FWIW: CNBC is more or less a pure entertainment show based upon fictious data and news stories. It even has its own sitcom: "Mad money" staring the comedian Jim Cramer.
Becky does have great tits tho....at least when I quit watching a long time ago
I heard Ric Edleman (http://www.edelmanfinancial.com/) boasting on his radio show yesterday that Venezuela posted the highest returns for any stock market in 2015...with NO explanation why.
The shares are priced in rapidly depreciating bolivars, annual inflation is estimated at more than 100 percent, and foreign investors have almost no chance of getting their money out of the country.
Oh, and he encouraged everyone to leave their life savings in the stock market because 2015, posting its worst year since 2008, is just a snapshot in the investing timeline.
Down 418.13 now, 10:59 EST. I remember when this would have been a fucking meltdown, full-on panic moment but now it's a fairly regular occurence to have multiple hundred point dumps and almost immediate recoveries.
Insane.
" I remember when this would have been a fucking meltdown, full-on panic moment but now it's a fairly regular occurence to have multiple hundred point dumps and almost immediate recoveries."
BTFD damnit! /sarc
The new herd, same as the old herd.
Surf's up. Grab your boards or your ankles.