04-29-2021, 08:55 AM
** 28-Apr-2021 World View: Conclusions of the 'signposts' article
It's worthwhile to post the conclusions from the article linked in my
previous post:
https://www.zerohedge.com/markets/lulled...everywhere
But this time is different?
Stock market bulls suggest the stock market will continue rising
because the pandemic will soon be over (I’m not so sure) and developed
economy governments have put enough money into their economies to keep
their stock markets elevated (not sure about that either). Investors
have been lulled into complacency because the stock market has rallied
through every risk thrown its way for more than a decade. It is a
mistake to think this is normal or sustainable.
Some feature of COVID-19 will likely be the stock market’s undoing,
but it doesn’t have to be. Possible candidates include an emerging
market sovereign fiscal crisis, a large hedge-fund/bank blow-up,
fraud, social unrest, or a geopolitical crisis. There is also the
possibility that an inflection point won’t have an identifiable
catalyst, but could happen just from a collective realization that
asset prices reflect optimism extrapolated further into the future
than is realistic. I don’t know when or how, but sentiment will
change; the boom and bust process is as old as civilization.
When it happens, nobody is big enough to stop it coming down. Fiscal
and monetary stimulus is this cycle’s “false idol.” Every cycle has
one – a reason why it can’t come down. Right before the stock market
crash of 1929, Yale economist Irving Fisher said stock prices were in
“what looks like a permanently high plateau.” Portfolio insurance was
the culprit in 1987. In 2000, it was said that the internet was a “new
paradigm” obviating historical comparisons. Before the 2007-2008 stock
market crash, Alan Greenspan, chairman of the Federal Reserve, said
the housing market was too varied geographically to come down at
once. Ben Bernanke, the subsequent chairman of the Federal Reserve,
infamously said that he thought losses to subprime mortgage loans were
“contained.” All of them were wrong.
It's worthwhile to post the conclusions from the article linked in my
previous post:
https://www.zerohedge.com/markets/lulled...everywhere
But this time is different?
Stock market bulls suggest the stock market will continue rising
because the pandemic will soon be over (I’m not so sure) and developed
economy governments have put enough money into their economies to keep
their stock markets elevated (not sure about that either). Investors
have been lulled into complacency because the stock market has rallied
through every risk thrown its way for more than a decade. It is a
mistake to think this is normal or sustainable.
Some feature of COVID-19 will likely be the stock market’s undoing,
but it doesn’t have to be. Possible candidates include an emerging
market sovereign fiscal crisis, a large hedge-fund/bank blow-up,
fraud, social unrest, or a geopolitical crisis. There is also the
possibility that an inflection point won’t have an identifiable
catalyst, but could happen just from a collective realization that
asset prices reflect optimism extrapolated further into the future
than is realistic. I don’t know when or how, but sentiment will
change; the boom and bust process is as old as civilization.
When it happens, nobody is big enough to stop it coming down. Fiscal
and monetary stimulus is this cycle’s “false idol.” Every cycle has
one – a reason why it can’t come down. Right before the stock market
crash of 1929, Yale economist Irving Fisher said stock prices were in
“what looks like a permanently high plateau.” Portfolio insurance was
the culprit in 1987. In 2000, it was said that the internet was a “new
paradigm” obviating historical comparisons. Before the 2007-2008 stock
market crash, Alan Greenspan, chairman of the Federal Reserve, said
the housing market was too varied geographically to come down at
once. Ben Bernanke, the subsequent chairman of the Federal Reserve,
infamously said that he thought losses to subprime mortgage loans were
“contained.” All of them were wrong.
