<blockquote>'One thing should be clear:
policy makers have not become “smarter.” What they have become, with each bubble-crash cycle, is more reckless and arrogant in their willingness to extend speculative financial conditions by encouraging yield-seeking, compressing prospective future investment returns, amplifying the destructive consequences that inevitably result, and ironically, using those same consequences to justify fresh intervention.
..
I fully recognize that during a period of reckless speculation, substantial but temporary rewards are often available to those that embrace the most reckless behavior. Still, I’ve correctly anticipated the collapses of prior speculative episodes, and the likely extent of the accompanying market losses. Our discipline has adapted in ways that will better tolerate extreme valuations in future periods where market internals remain generally favorable. Meanwhile, despite our challenges in the advancing portion of this bubble, the cycle isn’t over till it’s over. I’ve learned that the criticism of “being defensive too early” has little bite by the time a collapse wipes out 7-14 years of market returns (in excess of Treasury bill returns), as the 2000-2002 and 2007-2009 declines did. I have every expectation that the completion of the current cycle will do the same. Having established a constructive or leveraged market outlook after every bear market decline in over three decades as a professional investor, I am equally convinced that there will be strong investment opportunities on the other side.'
- John P. Hussman, Ph.D.,
Estimating Market Losses at a Speculative Extreme, August 7, 2017</blockquote>
'..while vulnerable, the Bubble is still expanding .. Charlene Chu .. currently forecasts almost $4.0 TN of Chinese Credit growth this year, with total Credit approaching 300% of GDP..'<blockquote>'For now, it’s difficult for me to take a negative short-term view on U.S. economic activity so long as the housing and export sectors continue to boom. It’s remains a Bubble Economy and, while vulnerable, the Bubble is still expanding.
At this point, the bond market is content to disregard a lot of data, that is, so long as there are no upside surprises in consumer price indices or wages (the two data sets stuck deepest in the structural muck). This works to keep market yields artificially depressed – and mortgage rates extraordinarily low. With after-tax borrowing costs remaining significantly below the rate of housing appreciation (in many areas), the backdrop is favorable for a strengthening of an already potent housing market inflationary bias. The unusually low levels of housing inventory – and an expanding list of overheated local markets – coupled with the Fed’s fixation on CPI sow the seeds for Housing Bubble 2.0.
August 1 – Bloomberg (Alfred Liu): “China has made progress in slowing leverage in the economy, but still needs to do more with the total amount of financing expected to rise 13% this year, according to Autonomous Research analyst Charlene Chu. Total outstanding credit is expected to grow to 223 trillion yuan ($33 trillion) by December from 196.8 trillion yuan at the end of 2016, analysis by Chu shows. The estimated increase will be lower than last year’s 19% gain as the government’s campaign against leverage starts to bite, she said. Her estimates are far higher than the latest official figure of 167 trillion yuan in June, which she says doesn’t accurately represent the true state of financing as it doesn’t include items like local government bond issuance and some forms of off-balance sheet lending.”
Charlene Chu is one of the preeminent analysts of Chinese Credit. She currently forecasts almost $4.0 TN of Chinese Credit growth this year, with total Credit approaching 300% of GDP. It’s somewhat of a challenge to be negative on short-term global GDP trends with record Chinese Credit expansion, enormous ongoing global QE and booming securities markets. At the same time, there’s a strong case that we’re getting awfully close to peak QE, peak Chinese Credit and peak global securities Bubble. Things would get more interesting if economic data begins to surprise on the upside, forcing the Fed and other central banks to again rethink the meaning of “normalization”. That would awaken bonds. July payrolls could have been a start.'
- Doug Noland,
Data and a Carefree Bond Market, August 5, 2017</blockquote>
Context<blockquote>
Debunking MMT, Keynesianism, Monetarism: Reader asks “What theories do you believe?” Mish Reading List, August 5, 2017
Median Price-to-Revenue Ratio Higher in All Deciles vs 2007, 90% vs Dot-Com Bubble: THE Choice, August 6, 2017
'Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.'(2017) - '..a deeply systemic debt crisis akin to the aftermath of 1929 .. the stage has now been set..'</blockquote>