Probably the most surprising part of credit-driven market tops is how long they take to play out. The early crash, the central bank pushes back, the highly-leveraged speculative melt-up, then the initial blow ups (Archegos) that force banks to pull back.
Minsky witnessed a lot, but he surely never imagined an environment of zero rates and endless Trillions of Fed monetization, and how such a backdrop – the perpetual “bonanza” – would extend the “deviation amplifying” Ponzi phase.
It does not have to reset to the historical average for another large round of losses to hit your retirement funds. This is why determining the difference between normal pullbacks and larger corrections and bear markets is critical.
After such a historic year of monetary inflation, efforts to pull back will expose myriad fragilities. Unparalleled debt and speculative leverage in a backdrop of rising inflation risk and more cautious central bankers create a high-risk backdrop. Toss in an epic speculative mania in equities, derivatives trading, cryptocurrencies and the like, and it’s difficult to envisage an environment fraught with greater risk. All eyes on the global leveraged speculating community.
Noland comment: I abhor historical revisionism. “Rates were very low. They were at zero for seven years… During that we didn’t see… excess buildup of debt. We didn’t see asset prices forming to bubbles… We didn’t see a housing bubble.”
194% in 1990
358% marked 2000 mkt top
387% marked 2007 mkt top
556% today
A mental exercise of where the market and our funds are today.
We have a socialist financial system where the big boys bail themselves out and skim from everyone else. And some want to fix it. The Marten’s highlighted the Senate Banking Committee’s attack on wall street this week. And it is… Read More ›
China’s National Team stepped in overnight to buy their stock market. Global markets bounced overnight. The central banks are getting nervous again.
In sum, the volatility experienced across markets over the past couple weeks indicates growing risk of a financial accident.