Bubble
Trouble
When Everything from Bat Guano to Quatloos Is Soaring, Speculative Euphoria Has Reached an Extreme
In other words, asset valuations don't need to make any sense; just buy now and you'll be rewarded with guaranteed gains thanks to central banks. This strategy has worked exceedingly well for 10 years, so why won't it work for another decade?
Put another way: central banks have created a speculative monster. The public cover for central bank easing has always been to "stimulate growth" in the real economy, but the real effect has been to concentrate the newly issued currency and leverage ("money") in the few hands that own most of the speculative ("risk on") assets. This pool of new money has been augmented by cheap credit for global corporations, enabling management to buy back trillions of dollars of stock, thereby enriching stock holders and those collecting stock options as part of their management compensation.
The more extreme the speculative euphoria, the greater the risks of a reversal.As Lao Tzu observed, the way of the Tao is reversal, and a fever-pitch extreme of speculative euphoria makes an equally extreme decline inevitable as gargantuan asymmetries unwind.
But speculative extremes eventually reverse, regardless of the monster's agonizing screams.DYI: It appears to me that the market when measured against gold top out back in September of 2018. When the actual indexes begin their decline is any ones guess. DYI’s model portfolio is with zero stocks for a few years waiting for this Fed induced speculative monster to die of exhaustion.
Amazingly
the Fed’s have generated policy papers stating that if necessary they will move
the five year note as low as negative 4%!
This would drive the U.S. 30 year T-bond to negative rates! WOW!
Eventually no matter how much stimulus the Fed’s eject into the
financial system the tide will turn as more and more market participants
realize the party is over and stocks come tumbling down. Until then... The Great Wait Continues.
DYI
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