All it took was a whiff of air. Like that asshole friend in college who’d hang around waiting on you to painstakingly build your elaborate house of cards so he could swish by and knock it all down with his tailstream, some computer hacker broke into a Twitter account of some talking head in the media, told of bombs going off in the White House, and blew the economic and financial house of cards down. Stocks in the S & P 500 lost $136 billion in value in a matter of minutes. They recovered as quickly as they fell, back up about to where they had been trading, about 1% above the open, shortly after it was discovered the report was fake.
What does this say about this raging bull of a market, up over 100% since the plunge in 2009 (but only barely having broke even since the original crash, in 2001)? What happens when a report like this turns out to be true? Should the value of a stock change so drastically just because of a false rumor that has no direct bearing on it? Or are values already well ahead of themselves? Does this episode reflect how precipitously poised are the markets, teetering on a mountain of money created by the Fed?
But don’t worry. The housing market is booming about now, right? Well, yeah, if you don’t account for the fact that roughly twenty percent of the resale, existing-home market, is going to investors. Remember how investors (people and entities with no intention of living in the properties they purchased) drove up prices during the subprime era, accounting for about a quarter of purchases before the crash? According to a report on Bloomberg, they’re back, and in a big way. The article quoted an Atlanta area money manager, Justin Berman, as saying, “They can’t get their hands on enough homes.” Where have I heard that before?
The Fed has basically reengineered the last three bubbles, but simultaneously. There’s not any serial bubble blowing and bursting this time. The stock market bubble and the housing bubble and the bond market bubble have been reinflated simultaneously. They’ll pop that way, too. There’s no telling what may cause it, or when. But there is no doubt it is coming. It will likely be a “long-tail” event that catalyzes the looming financial and economic disaster–war on the Korean peninsula; Chinese ghost towns being revealed for what they are; Iran bombing Israel or Israel bombing Iran; the Eurozone finally imploding–whatever happens, the economic punditry and the econo-magicians at the Fed will claim they couldn’t have known it was coming. But they will be lying. They know, or should by now, the end result of inflated asset values is rapidly deflated asset values. Whatever long-tail event is superficially blamed, the real blame will lie with the Fed.
And what will the Fed do when it implodes, again? No doubt, hew to the same insanity, and double-down, again, on the strategy that has yielded disaster after serial disaster. This would all be quite humorous, if the effects of the Fed’s shenanigans weren’t so deadly serious. People better get prepared.