A cura di Walter Snyder, Swiss Financial Consulting
The dotcom bubble of 2000 was primarily an American affair that cost a lot of people a lot of money while the crisis of 2008 had far-reaching international implications, which led to governments going deep into debt in order to save the banking system. Banks had foolishly bought billions of dollars of paper that was based on sub-prime mortgages wrapped up in other securities. That crisis is still being felt, and the recovery has been long, hard and slow.
This Newsletter has described the new current situation that is quite different from what things were like ten years ago. The central bank experimentation with ZIRP and NIRP has not resulted in vigorous growth even as it has brought about inflated equity prices and gross misallocation of capital. Yellen, Draghi and Co. are in no position to do much about a sharp economic downturn since interest rates are so low that they cannot be lowered much without entering negative territory, which will not help to turn the economy around and produce growth.
Economists generally agree that excessive debt hampers growth, which helps to explain why the so-called recovery has been so sluggish. There is no real correlation between the stock market highs and the real situation in the US labor market as the number of people of working age that are not working is extremely high. The BLS produces statistics that indicate that unemployment is less than 5% when real unemployment is closer to 20%. Manipulation of statistics in this way is what one expects in an Orwellian nightmare.
The extent to which Americans can believe that stock prices should be determined by the expectations of future earnings is indicative of the mentality that spawned the euphoria before the crash of 1929, the dotcom crash of 2000 and the high-flying financial juggling of the 2008 debacle. Wall Street now justifies high stock prices with “animal spirits” that propel investors to take on ever greater risks.
The present rally has now become the second longest one in history. It remains to be seen if the sputterings on Wall Street the week before Easter are harbingers of change. Volatility has been so low that it seems suspicious. It may be that investors have no inkling of the coming storm because they think the calm will go on forever. Americans seem to have no clue that the dollar is under siege, the trade balance is disastrous and that their government is close to being bankrupt. They will be blamed for triggering the next economic crisis that may be long-lasting and more severe than the last one. The day of reckoning draweth nigh.