Monday, July 3, 2017

The real cause of the stock market's continued rise


John Mauldin (whom we've met in these pages many times before) explains the real reason why stock markets all over the world are in such an exuberant frenzy.

The SNB [Swiss national bank] owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).

They have bought roughly $17 billion worth of US stocks so far this year. And they have no formula; they are just trying to manage their currency.

Think about this for a moment: They have about $10,000 in US stocks on their books for every man, woman, and child in Switzerland, not to mention who knows how much in other assorted assets, all in the effort to keep a lid on what is still one of the most expensive currencies in the world.

. . .

The point is that central banks and governments are flooding the market with liquidity all over the world.

That’s showing up in the private asset markets, in stock and housing and real estate and bond prices. It creates an unquenchable desire for what appear to be cheap but are actually overvalued assets—which is what creates a Minsky moment.

Now, remember what Minsky said: When an economy reaches the Ponzi-financing stage, it becomes extremely sensitive to asset prices. Any downturn or even an extended flat period can trigger a crisis.

While we have many domestic issues that could act as that trigger, I see a high likelihood that the next Minsky moment will propagate from China or Europe. All the necessary excesses and transmission channels are in place.

The hard part, of course, is the timing. The Happy Daze can linger far longer than any of us anticipate. Then again, some seemingly insignificant event in Europe or China—an Austrian Archduke’s being assassinated, or what have you—can cause the world to unravel.

It’s a funny world.

Our central banks and governments exhibit unmistakable herd behavior and continue to do the same foolish things over and over. They never really intend to have the crisis that ensues.

Remember Farrell’s Rule 3: There are no new eras. The world changes, but danger remains. Gravity always wins eventually. It will win this time, too. And when it does, we will begin to undergo the Great Reset.

There's more at the link.

I think Mr. Mauldin speaks wisdom.  The news from Illinois last Friday is merely another crisis to add to those already bubbling away - Venezuela's economic collapse, insecurity in the Persian Gulf, North Korea's xenophobic aggression, and what have you.  There are far too many to list here.  One or more of those elements may yet trigger an overall systemic collapse, alone or in combination.  That's not guaranteed - but it's far from impossible, too.

Keep your head down and your economic powder dry, friends.

Peter

6 comments:

bruce said...

from the tiny bit I've heard from Mauldin its doom and gloom 24,7, 365.
some one who says is is night every time you talk to them will be right i you see them at night.

Bob M said...

Bruce, could you repeat that a little slower?

bruce said...

good point Bob, I apologize for the incoherent note.
It's just that the guy sounds negative all the time.

CDH said...

Alan Greenspan disagrees.

http://video.foxbusiness.com/v/5489801301001/?#sp=show-clips

I know which expert I listen to.

bmq215 said...

Doomsayers will always appeal to people who enjoy feeling like they're smarter than those around them. The fact that they're occasionally right doesn't make them any more credible than the proverbial broken clock

C. G. R. said...

I'm afraid I have to disagree - Maudlin is stating facts and sooner or later the consequences of this absurd imbalance between promises and debt will trigger the next collapse. There simple is no alternative. The problem is that politicians still think they can push the collapse into the future, so their successors will have to handle it. That strategy however is increasingly difficult to implement since the imbalance is growing seemingly in an exponential fashion.