The Greatest Bubble Ever: Why You Better Believe It, Part 1

The comments above & below is an edited and abridged synopsis of an article by David Stockman

After several rises and falls, this time the soaring stock market is supposed to be different, because the art of central banking was perfected in what Wall Street called the Goldilocks Economy—a macroeconomic environment so stable, productive and balanced that it would never again be vulnerable to a recessionary contraction and the resulting plunge in corporate profits and stock prices.

But now the central banks are out of dry powder and are stranded on or near the zero bound, where they are saddled with massively bloated balance sheets. So a pivot has begun, led by the Fed’s commitment to shrink its balance sheet at a $600 billion annual rate beginning next October. This pivot to QT (quantitative tightening) is something new and was necessitated by the radical money-printing spree of the past three decades.

What this pivot really means is not well understood in the day-trading and robo-machine driven casinos at today’s nosebleed valuations. Yet what is coming is a drastic, permanent downward reset of financial asset prices that will rattle the rafters in the casino.

This time is also different because there will be no instant financial market reflation by the central banks. And that means, in turn, that there will be no fourth great bubble, either. Stockman discusses the reasons why this is the case.

“In all, we’d say Wall Street is calling the sheep to the final slaughter. At the moment, in fact, the bleating is so loud that the gamblers are seriously debating whether the 50X gain in Bitcoin in just 22 months is sustainable. But that’s surely derangement at Tulip Mania scale, as we will further consider in Part 2.”