For Yours Truly, articles such as this are indication that we have not absorbed the lessons of 2007-08 or any central bank policy induced crises before that. Attributing the market ‘calm’ to central banks without even contemplating for a moment that markets might be complacent as they were in 2007 boggles the mind.
Of course, this reaction on my part is unsurprising because I think differently. That is the burden of my song in today’s MINT article. The answer to the NYT piece linked above is specifically in this paragraph:
The stock market in the US is ignoring these developments as it has in the past. This is both complacent and myopic. Strong corporate earnings were offered as a defence in 2007. That could not prevent a stock market rout in 2008. There is no reason to expect anything different this time. Markets seem to be able to look only at the numerator (and that too, earnings and not dividends) whereas rising risks must be factored into the denominator (the discount rate). Investors refuse to do so because central banks have permanently shut down the signalling function of interest rates.
By now, there is a high chance that readers have heard of and read the speeches by Jim Grant and Robert Wenzel at the Federal Reserve Bank of New York. OF course, both are preaching to the converted. While it is praiseworthy that FRBNY invited them, listened to them and offered them food, it is unlikely they would have swayed hearts and minds beyond a few seconds or minutes. But, do read the speeches for the wit, sarcasm and views stated without pulling any punches.
Jim Grant calls the Federal Reserve the ‘Office of Unintended Consequences’ while Wenzel invites them to shut down the office and walk out with him after dinner.
As a side-note, this blogger owes it to himself and to the name of this blog itself to comment on Chairman Bernanke’s comments on Gold Standard. Murray Rothbard had done so eloquently some twenty years ago. But, that is another topic for another occasion.
In this regard, it came as a surprise (to this blogger, of course) that Hugh Hendry is massively bearish on China and is on the cusp of being bullish in the US. Well, his negativity on China is old news. For the most part, I can accept the former with some qualifications and I can understand that one can get bullish about the US at some stage. For example, given US demographics, long-term attractiveness as a dynamic place for entrepreneurship and creativity, one can lock in some value in US real estate now. But, US stocks on the cusp of a bull market as in 1982?!
On the plus side we also believe that we are much closer than before to the beginning of a bull market of perhaps 1982, if not 1932, proportions. We just need the last shoe to drop.
Of course, there is the last shoe to drop. We do not know how big the shoe is and how steep is the drop going to be. He has hedged himself, alright.
Frankly, it is not much of a contrarian stance NOW to be bullish on the US and bearish on China.
Some of the comments to this above post in ‘ZeroHedge’ are rather interesting.