re: Is Everything "In A Bubble" Right Now?

quote:

---

they flood money into sectors, create inflation, and then cut ties

---

I think you've been buying too much into populist storytellers like Michael Lewis, and getting the causation completely wrong here.

There's little doubt in my mind that most asset prices are wildly overvalued at the moment (just read by Hussman-related posts on here), but it has absolutely nothing to do with the i-bankers and PE/VC crowd inflating prices or pumping and dumping. They're just doing their job as salesmen, and the real driver of inflation is near-ZIRP. The PE/VC firms thus gets tons of money raised easily, but then can't find enough deal flow to sustain their enterprise and justify them holding all that investor cash--so they bid up multiples. But they're just playing the central bankers' game of musical chairs--they dance or they have to quit and find employment in another type of career.

It's the classic financial advisors who are selling people on bullshite (i.e., that stocks are currently a good investment because of their dividend yield relative to bond yields) once again. You can hardly blame them either though. They're just doing their jobs.

Calling this an "everything bubble" is a pretty decent way to think about things, but technically (as Shiller himself points out), we're not really experiencing bubble-type phenomena, ICOs excepted. Rather, we're just experiencing overinflated asset prices everywhere because nobody knows what else is better to do, even though a whole lot of people are still worried.

Also, I've been a sharp critic of near-ZIRP since about 2011 (although I also supported it from about 2008-2010 as being temporarily necessary), but not all of this can be laid at the feet of the Fed either. Firstly, because the Fed isn't the root cause of America's macroeconomic stagnation since the mid-1960s (and more sharply since 2000). Secondly, because a lot of the asset inflation is coming from overseas. There are people out there who make a pretty good case that recent U.S. stock market appreciation is correlated to the combined asset balances of the FRB, ECB, BOJ, & PBOC (plus the BOE, SNB, etc.). So even as the Fed begins to wind down, that doesn't mean that other major central banks won't keep propping things up. The Swiss National Bank alone has about $80 billion invested in the U.S. stock market, or about $10,000 for every man, woman, and child in Switzerland. Crazy times.