What goes up, eventually comes down.
That is just reality.
The bull market that began in 2009, has now entered the final stage of “capitulation” as investors throw caution to the wind and charge headlong into the markets with reckless regard for the consequences.
Of course, it isn’t surprising given the massive amounts of liquidity continually injected into the financial markets and global Central Banks have now figured out that continually rising financial markets solve much of the world’s ills. Simply, with enough liquidity, you can cover up bad (credit risks) by guaranteeing holders they will never default.
It’s genius. It’s a “no lose” investment scheme.
Unfortunately, we have seen this repeatedly in the past.
In the 1980’s it was “Portfolio Insurance” – a “no lose” investment program that eventually erupted into the crash of 1987. But not before the market went into a parabolic advance first.
In the 1990’s – it was the dot.com phenomenon which was “obviously” a “no lose” proposition. Even after Alan Greenspan spoke of “irrational exuberance,” two years later the market went parabolic once again.
Then in 2006-2007, banks invented the CDO-squared, a collateralized derivative obligation based on other collateralized derivative obligations. It was a genius way to invest with “no risk” because the real estate market had never crashed in history.
Today, it is once again an absolute “certainty” that markets will rise from here as global Central Banks have it all under control.
What possibly could go wrong?
Here is your weekend reading list.
Economy & Fed
- The Fed Should Listen To The Market’s Message by Caroline Baum via MarketWatch
- The Fed Needs To Read This Economics Book by Simon Constable via US News
- DAVOS: Something Wicked This Way Comes by Tyler Durden via ZeroHedge
- Could We Be About To Break Out Of Low Growth “New Normal” by Mohamed El-Erian via FT
- Does Trump Deserve Credit For Good Economy? by Larry Summers via Washington Post
- Kashkari: Robust Immigration Vital For Economy by Pedro Da Costa via BI
- Economy’s Success Is About The Math by Jonathon Trugman via NY Post
Research / Interesting Reads
“Strategy without tactics is the longest path to victory; tactics without strategy is the noise before defeat.” – Sun Tzu, The Art of War
Questions, comments, suggestions – please //firstname.lastname@example.org/" target="_blank" rel="noopener noreferrer">email me.
Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter and Linked-In