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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Global reset anyone? Some say it's time.
"Global reset anyone? Some say it's time."
Not yet, just a lot more worldwide QE. TPTB are not ready to hand over the reigns. As long as there is money left to steal the show will go on!
Let the shitshow begin...
Dow minus 390 now. Amazon down 3.8%. Mr Varney is very concerned over on FNBS.
It only took $11+ Trillion of new debt; that is what is different.
The rapacious criminality of Wall Street firmly entrenched.
Backed by Washington D.C. inc.
Where is Jon Corzine?
2001/2008/2016?
About a trillion a month.....sounds about right.
Look at it go! http://www.usdebtclock.org/
(opens in new window/tab)
The worst part is that is the money giving to private banks like JPM to be loaned out to Baker Hughs et al. It wasn't the people of the United States' less for a minute, long enough to brand with a cattle iron on their backs.
I love that clock. I was marveling at how fast the debt increases when it occurred to me....why does it have to increase at all? Why not decrease? Would that not be the sensible thing to do if you have overwhelming debt?
Then I woke up....
It would be instructive to see a few second derivaties, how fast the rate of debt accumulation etc is changing. Then graph them against time, a picture can tell a thousand words.
jonny boy is free to roam about, because he is an honorary member of the CLUB.
red has become my favorite color, (then black) hehe...
edit-black monday?
time to film banksters jumping out of buildings?
This is all leading up to a full disclosure that will rock the entire fabric of the world as we know it……
http://beforeitsnews.com/conspiracy-theories/2016/01/top-secret-alien-ph...
Ya know what? I clicked your dumbass link... PLEASE go away.... I would like my wasted 40 seconds back please..
With everything going in in our crazy world today, the discovery of extraterrestrials wouldn't surprise me at all. What I DO find funny is how so many people will believe the most convoluted, intricate, Machiavellian conspiracy theories, but will think the idea of aliens is just too ridiculous to consider.
Ha! I think the whole 'alien visitation' thing is probably one of the more sensible beliefs of our day. And, when you think about it, this could explain a lot of the other shit.
Like anything outside the ordinary, the burden of proof is on the proponents, not the deniers. Don't tell me I need to prove there ain't no aliens. Same applies to religion.
Best argument against it I know is that intelligence is likely a self-limiting mutation. It contains the seeds of its own destruction. They would have destroyed themselves long before they made it here. Just like we likely will, before we can get out there.
LOL. You know there was a researcher who swore that in 2012 or so Obama was going to disclose alien contract. Never happened. Obama would sooner admit his own alien origins before doing that.
DOW DOWN 327, my favorite displacement!
(metric=5.3L)
+++
Never heard a motor idle so smoothly as a 327, 283, or Ford 289.
Yeah, 327-350 best engine ever built, but take that 327 and drop in the 283 crank and you get the glorious 302,one of my favorites.
5.3 is one of the best....stock top and bottom handles 20 lbs of boost ... getting over 600hp! They are unrel.
Jewberg says we just need to be cautious and buy moar stawks.
You play you pay.
Lucy. Football.
BTFD!
Now! Hurry.
Don't miss out.
This is the buying opportunity of a lifetime...on phone with all brokers...BUY BUY BUY...
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Silver that is...
Don't forget lead,brass, and steel parts that make them fly.
This is the whole sham..
They buy bonds to almost zero yield across the curve which drives up asset prices. And allows the govt to keep spending.
Then any sign of recovery or rate rise risk assets fall and everyone is hearded back in to Govt bonds at virtually zero yield.
So the govt gets funded for almost no interest .
And on it goes.
I.e. They don't really care about the private sector it's all above the Govt getting funded remaining in control..
We have to go negative rates ect.. And on it goes
And we all live in Governmentland happily everafter. (
and it keeps the real estate bubble alive, huh/s...
The Fed gave the market a botched fundamentals lobotomy and now the patient is flailing around disconnected from reality.
...and the perfect metaphor:
https://www.youtube.com/watch?v=yH97lImrr0Q
Everyone should be sleeping with a diaper on.
It won't stop you from shitting yourself but it will at least save you some of the initial embarassment.
I sleep in the tub. Cleanup is easier, and it gives a bit of bullet protection.
You have a cast iron tub, cause that's what you will need
hail the doomers! stockman at the top of the list!
doomers rule.
realists-critical thinkers unit and lol time, ha...
popcorn unlimited; sit back and enjoy the fruits of frustration...
not my consternation, i shit just fine thank you.
"to wit" -stockmans famous lead on...
the view of the future:
1% of people owns all the earth resources and automated factories
99% of people are jobless and live on welfare system by receiving money onto their welfare cards
welfare money can only be spend on buying specific goods of specific producers sold at specific stores
by specific i mean loyal to existing ruling class (vote the right way , elect the right people etc)
When you take that view you realize that what we have today is a rather smooth transition and nothing drastic is going to happen.
Markets are not going to crash
top 1% will own the whole market
P/E will continue to go up
you are most likely correct because they are in control one way or another-thanks for the reality check and cog dis check off...
A Pure Evil Sadistic Global Fascist Serfdom System of Debt, Bondage & Enslavement.
Sounds just like the book I finished: Kirk Vonnegut's "Player Piano". The elite run the automated factories, where the computers figure out, what you will need to live and occasionally, they'll issue you a new refrigerator or dishwasher based on the use cycle. Meanwhile, the 99% have two choices: Either work in the Reconstruction and Reclamation Corps or join the Army. The Reconstruction and Reclamation Corps are derisively referred to as the 'Reeks and Wrecks'. Your whole future is decided by a test score, that's generated by a computer, based on your testing results out of High School.
Amazingly enough, it was written in 1952!!!
What is all the glee about... markets rise and fall...do not think the world woke up on Jan 4th, 2016 and became smarter...let the bears have their run...maybe a good time to buy on the dip?... Happy or Sad New Year to all!
Why work? -If you work and have managed to save something, maybe a retirement plan, a paid for house, even just an emegencey savings account you will be blamed by the media and government as one of the wealthy who caused the collapse with your greed and selfishness. You didnt pay your fair share. Bettter to join the sheeple, become a democrat, and live off the backs of others...
PPT & TBTF at work: smack down of silver .... BIG TIME!!! Talk about a buying opportunity of a decade!
Probably margin calls but could be PPT.
Look at a 6 month chart, it's been an (apparent) opportunity for 2 months now.
"A bust that puts valuations back to 1982 bear market lows would result in a decline exceeding 75%."
Does anyone here find the reference to '1982' more than once, a bit telling...? Valuations and 0.45 multiples aside, the early 1980's were a very key period in time, as any chart of housing prices will attest. Aside from post August 1971, the early 1980's were when the reigns came off and the horses of perpetual deficits and easy credit were allowed to run free. The genesis of current affairs must not be lost on past eras of key significance.
If I remember correctly, interest rates were damn near 20% and we actually sent criminal bankers/financiers to prison for fucking around with mortgages/titles!!!!!!!
The population and demographics of the planet were considerably different as well. This is not 1971 nor 1982 friend, not by a long shot.
If the LIBOR Scandal didn't bring any Psychopathic / Sociopathic Bankers to Prison. Nothing will. The whole Damn Global Financial System of Debt, Bondage & Enslavement is beyond Criminal & repair.
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.
So the banksters pocket billions, and I get some johnny-come-lately, half-assed movie to go watch. "Brilliant," only if you're a dog who appreciates being thrown a bone.
I'm more in the mood for some live entertainment that involves watching bodies convulse while they're dangling at the end of a rope.