Steen Jakobsen, Chief Economist, Saxo Bank; "Stock market bubble"

"We have a generation of traders and investors who see any dip as a buying opportunity and policy makers who argue everything being equal, it’s better to have a stock market bubble than disorderly markets and depression.

The [central banks' artificially created] illusion is almost perfect now – probably the best argued and most confidently performed illusion in my career.

...as the market and the economy moves forward in time, the [central banks' artificially created] inefficient allocation of resources will increase the systemic risk, but, similar to today, the system first [artificially] stores the energy, then releases a clearing process [when enough figure out the central banks' artificially created a false economy].

...as the market makes higher and higher [artificially created]returns and gets confirmed over longer periods it reaches an [artificially created] “eternity” or a new paradigm, or “this time its different”

...The [artificially created] system self feeds into higher and higher returns and less and less volatility until the “energy is released” when the “load”/misallocation is too high for the system to carry.

...To make the mistake of thinking that ANY analysis can really be done when we [have a central bank created artificial economy] is the vital flaw of Pimco, SNB, policy makers and the stock market, so I am not saying the Dow in 100.000 is not possible, neither will I second guess Pimco’s new found bullishness, I am merely applying history, maths, engineering and economics laws to the issue.

It could be me who needs to be re-educated, but to be honest, and with no false modesty, I am yet to meet a single argument or belief which is not entirely driven by low interest rates [from central banks' artificially created stimulus] as the driver of the markets.

Having spent this week with major policy makers in Switzerland at an offsite I am not comforted. They all agree with… me! They know that the only way to align progress economically with politicians is to get a crisis mode. Most of them have “battle scars” from 1992,1997/97, 2000 et al so they know that real changes only happens during down turns.

They accept that their monetary policy exclusively goes to the 20 percent of the economy which is the listed companies. While they are concerned about [central banks' artificially created] markets valuations, they are more concerned about the lack of growth and their inability to reach their inflation targets.

Unstated but clearly on their mind, they are beginning to doubt whatever the [consequences of a central bank artificially created global economy] will soon show its ugly head.

...These policy makers, are veterans of trying to keep the system from reaching its [natural levels], but they also realize that over time – the system mean-reverts. That’s the strength of their education relative to the market traders. Both can be right, the market and the professors, but the timeline is different.

My bigger point here is that this is not "different times", the system's low volatility will be replaced by higher volatility, the [central banks' artificially created economy] leads to bubbles by definition unless you of course believe in eternity...

Kafka is right – and – It feels like an eternity since the market last traded like a real market, but make no mistake, exactly when you think more of the same is destined to be your strategy, things do change despite the feeling of infinity."


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