Bubbles Burst

Is the NASDAQ another bubble? (Want to ride the roller coaster? Clink here.)

Of course, it’s a bubble–even if it’s not ready to pop–but it’s not just the NASDAQ. There’s no fundamental reason for stocks to be breaking records. The economy at best stumbles along.

So why are all the indexs up? Supply and demand. (I aced college economics even if the Smart Guys in Washington didn’t.)

The Fed has been flooding the economy with new money for most of this decade. But it doesn’t come to you or me, it goes to the banks. Where are they putting it? In bonds underwritten by stocks, bonds and commodities.

China has a stock bubble going, too. When they both burst, each country will blame the other. Just as the democrats and Republicans blame each other for everything.

Everything on Wall Street is up (except oil because that supply is burgeoning), and precious little of it trickles down to Main Street

The Fed created this bubble. Bubbles eventually burst.


4 thoughts on “Bubbles Burst

  1. Aren’t there more factors than one to explain the market growth? Many more people are in the market these days. They don’t have pensions and need to jump in for their retirement. People have less fear of the market than previous generations. I’m always suspicious when someone says that one thing is the root cause of a big thing. How about many variables?

    • What you say is true, even though individuals play a decreasing role in the markets compared to institutions.

      Yes, there are variables.

      But the impacts of the Fed’s quantitative easing (QE) has been ignored–if not praised–since 2008, when in fact it was a dangerous, destabilizing practice. The Fed fed trillions of dollars into the economy (under Bush and Obama) trying to “jump start” it after the Recession of 2008/9. The trick is that sustained intervention quickly becomes the new status quo. Just the rumor of higher interest rates sends markets down because the markets have become addicted to cheap money. Money is cheap because the Fed ran the presses (metaphorically) day and night for years. It didn’t show up as inflation; it showed up as inflated stock, bond and commodity prices,

      I beat this drum, not because no other factors aren’t at play, but because the policy makers are ignoring this elephant. And, whatever the cause, crashes hurt the people on Main Street more than those on Wall Street or at either end of Pennsylvania Avenue.

  2. Speculators bidding up the price of commodities worldwide may have contributed to the current glut of commodities which has sent commodity prices tumbling. Whether that’s good depends on whether you’re a producer or a consumer.

  3. “The question isn’t did they miss the bubble but did they create the bubble,” said Lance Roberts, chief strategist at STA Wealth Management. And the answer, according to Roberts, is a resounding yes.

    Roberts said financial bubble cycles have become self-perpetuating in the last two decades as the Fed has “manipulated” monetary policy in response to a crisis only to create conditions conducive to another bubble, which sets the cycle in motion again. (emphasis added)

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