Tuesday, October 25, 2016

The Boredom Before The Storm
John Rubino* highlights how the financial markets are getting less & less volatile, even in the face of massive chaos & anarchy in world events .. "During credit bubbles volatility normally contracts because enough new money is being created to provide pretty much everything with a bid. In other words, all the new liquidity being created by desperate governments has to go somewhere, so dips get bought before they can become dramatic and traders accept the placid present as the new normal .. Second, we’re in an election year and the people currently in charge badly want their chosen candidates to win. So government spending is rising dramatically. The federal deficit is up 17% so far this year, but jumped 67% in August. This burst of new borrowing has given the economy its current 'all is well, stay the course' gloss. .. The current financial market insouciance is no more sustainable than that of prior to the financial crisis because it’s caused by temporary factors that can’t continue without themselves causing turmoil. Debt, for instance, can’t grow relative to GDP forever… and equity valuations have only exceeded their current levels thrice in the past century, each time with notable volatility following shortly. .. So it’s a safe bet that 2017 will be in many ways a mirror image of 2016. US politics will be decided if not settled, government spending will stop spiking, and equities will return – possibly suddenly – to more historically normal valuations. And rising volatility will once again become the norm – as it should be in a world this dysfunctional."
LINK HERE to the commentary

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