Tuesday, October 04, 2016

Sizing Up The Bubble
John Hussman sees the stock market currently as being in the 3rd financial bubble since 2000 .. blames the Federal Reserve: "The great victory of the Federal Reserve in the half-cycle since the financial crisis was not ending the global financial crisis; the crisis actually ended .. with the stroke of a pen that changed accounting rule FAS157 and eliminated mark-to-market accounting for banks .. the great Pyrrhic victory of the Fed has been to enable the third most extreme financial bubble in history, on the basis of capitalization-weighted indices, and the single most extreme bubble in history from the standpoint of individual stocks . Central banks have intentionally extended this speculation by promising that they, themselves, could be relied upon to be those greater fools .. What will drive the next crisis is not some rate hike by central banks (whose activist interventions have essentially zero correlation with subsequent real economic outcomes). Instead, the collapse will emerge both naturally and inevitably, as the progression of the economic cycle takes its course, and investor preferences shift from risk-seeking to risk-aversion. Virtually any commonplace shock is now capable of being a pin-wielding butterfly on this increasingly vulnerable financial bubble. Debt defaults, insolvencies, and pension crises are already unavoidable."
- John Hussman
LINK HERE to the essay

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