07-17-2020, 11:18 PM
(07-17-2020, 07:38 AM)John J. Xenakis Wrote: ** 15-Jul-2020 World View: Normal behavior
richard5za Wrote:> More and more people are saying that this market in relation to
> the economics makes no sense at all; but it keeps going up and
> up. Maybe its something connected to a Covid psychology: Lets
> gamble our way into riches?
What's going on today is normal behavior.
The last stage of a dying boom is a speculative frenzy that promises much and creates nothing more than those glowing promises.
A word to the wise: you cannot eat promises, but they can burn you if you give tangible value for them and they suddenly go worthless.
Quote:How is it possible that someone would take a large amount of money, an
amount comparable to the price of an entire house, and use that money
to purchase a certificate that is to be traded for a tulip to be grown
over the next eight months and become available the following spring?
I would like someone to explain how that kind of behavior -- by many,
many people -- is even possible, since I honestly don't have a clue.
Because people either fail to recognize it as a bubble, fail to recognize how shaky the bubble is, or believe that they can time the market The last person to cash out successfully might make a killing. But stick with the bubble too long and there eventually is no buyer. Because a purely-speculative investment has no inherent value, it can quickly go from overpriced to worthless. A share of 'good' corporate stock is typically worth some multiple of dividends that one can reasonably expect as income. Purely-speculative investments offer promises that might never materialize. Real estate is a prime example. Just look at the wild activity in the Inland Empire of southern California (basically the area around San Bernardino). Real estate is now relatively cheap around there by West Coast standards. Cheap real estate is so for good reason... and San Bernardino is now an awful place to live.
Quote:The reason that people don't believe in bubbles is because that kind
of behavior is so ridiculous that it's almost impossible to believe
that it actually happened. Then when it happens again, people make up
excuses to pretend it isn't actually happening.
Denial of reality... nobody calls it a bubble until it bursts. Some who think they know it for what it is think that they can time the market and sell out before the perception of value remains. One might as well do sports gambling, itself a dumb form of betting.
Quote:This isn't ancient behavior. I've repeatedly discussed the housing
bubble of the 2000s. Alan Greenspan knew it was going on. I knew it
was going on. Mish Shedlock knew it was going on. But here's what
the élite were saying: "Housing prices can't go down -- people have to
live somewhere," and "Banks won't foreclose -- it's not in their
interest to do so" and "These housing construction firms know what
they're doing, and they wouldn't be building houses if it were just a
bubble." It wasn't until 2009 that the "experts" even admitted to a
housing bubble, but by then it was always PAST TENSE.
There you have it! People full of $#!+, like construction firms, publishers who must keep an optimistic view of a phenomenon if they are to keep having readers, politicians riding a tide, and high-flying bankers think they know what they don't. As Mark Twain put it, what you don;t know doesn't hurt you so much as "what you think you know that just ain't so".
I could see a forthcoming great crash in real estate as early as 2005 after I read about some insane practices in real-estate lending: packaging fecal loans and over-rating their safety as high-grade investments.
Quote:The same thing is happening today. Investors' behavior is so
unbelievable, that in the future people will deny that it actually
happened.
The Obama recovery is over, as it couldn't last forever. The profits are eroding, which should be good reason to sell out while one can and perhaps buy some long-term, low-yield bonds that will be marketable no matter what short of the dissolution of the USA. In 2008 and 2009 we had "Too Big to Fail"... this time the entities that did not clean up their act may be "Too Big to Save". I predict that if things go really bad, then any recovery will be a combination of small business taking over in the ruins of the bloated behemoths and big government trying to prime the pump -- which is how things went in the 1930's. The 1930's really were a good time to start a small business because of cheap (but desirable) labor, cheap real estate, inventories readily available at fire-sale prices without the small of smoke, and customer loyalty at a level that we haven't seen since.
To liberal politicians, small business -- mom-and-pop business -- has the political benefit of being unable to buy the political process as Big Business did in 2010 and 2014.
Quote:Today, MMT is so laughably ridiculous that it's hard to conceive that
anyone believes it, but it's the core of most the excuses today. And
it's produced a global bubble that's probably several quadrillion
dollars in size. And as we've all pointed out, when that bubble
bursts, it's going to create the most disastrous financial crisis the
world has ever known.
The tautology operates -- it works well until it quits working well. Duh!
The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated Communist but instead the people for whom the distinction between fact and fiction, true and false, no longer exists -- Hannah Arendt.
