Sunday, February 21, 2016

Awaiting Some Tumultuous Market Tumble

It has been a long time since the 2008 financial crisis. Everyone who bet on a market recovery since then has been rewarded. Professional money managers think they have the recovery all figured out. Endless monetary and fiscal stimulus in the developed world made even the worst investment theses prosper. The experts have no idea how wrong they are about so much of the economy.

It is impossible to fairly value any publicly traded financial security when interest rates are permanently at zero. It is difficult to invest in fixed income securities when sovereign defaults in Greece, Puerto Rico, and elsewhere invalidate distressed debt investing. It is hard to buy real estate in desirable locations when credit-impaired mortgage borrowers drive up prices after putting no money down. It is ludicrous to endorse some nation's economic potential if its government statisticians falsify important data.

Painful lessons recede from memory when shamans apply fake salves to real wounds. The snake oil feels good for a while if the patient does not catch on to the placebo effect. Witch doctors on Wall Street have run away with investors' money since 2008. The cleverest and luckiest players have already left the game. Suckers remain, awaiting their chance to hold an empty bag while Wall Street's knaves clean them out.

The post-2008 economic recovery is mostly a mirage in Europe and the United States. China's growth miracle has been a mirage for some time. The BRICS were a cute marketing concept as long as investors never figured out that those countries had weak legal climates for investing. Privately funded unicorn startups are deflating, flushing their employees' stock options down the Silicon Valley drain. Investment concepts that looked great when capital had no cost were suitable only for fantasies. The market tumble that will snap people back to reality will be one heck of a tumult.