20 Years After Greenspan’s Irrational Exuberance Speech—-The Exuberance Has Become Just Plain Madness
20 years, to the day, after Greenspan’s iconic speech that warned of the unintended consequences of “irrational exuberance,” we find ourselves, yet again, in the midst of perhaps the largest asset bubble in history. In fact, Greenspan’s warning, previously made in a speech on Dec. 5, 1996, eerily reflects many of the same concerns surrounding the market today with low interest rates and lower risk premiums driving an unprecedented equity bubble.
Six Reasons Why Trump Isn’t Reagan’s Second Coming—–And Why The Trump Reflation Trade Will End In Tears
Back in the 1980s, investors looked forward to demographic and marketplace trends that favored strong economic growth. They waited for a cyclical reprieve from an unusually stormy macro environment (the 1970s). They knew the economy could, if need be, rack up plenty of new debt. They could see that equity valuations and profit margins were at record lows—which means they would likely mean revert. They expected that, if inflation could be tamed, falling interest rates would further fuel price growth. And they could sense that the American public was moving toward an embrace of marketplace individualism and its associated risks……Today, it’s fair to say, that investors can look forward to none of the above. One final thought about the Reagan-Trump parallel. Even if you feel that the likeness is persuasive—and that Donald is indeed the second coming of Ronald—keep in mind that Reagan’s election did not spark the Reagan boom. The economy and the markets had to go through a brutal recession and bear market first.
I can’t justify any of this. The lesson investors are getting is that everything is a buying opportunity and you need to not miss the boat. Brexit? Bullish. Trump winning the election? Bullish. Italy saying no to the referendum and the Prime Minister handing in his resignation? Bullish. Heck, all we need is the entire Belgian banking system to go kablooey and the S&P 500 will be at 3,000 by Christmas Eve.”
After repeatedly referring to NAFTA as “the worst trade deal maybe ever signed anywhere” during the presidential campaign, the Trump administration seems to be softening it’s protectionist rhetoric. According to The Hill, in speaking to a group of concerned business leaders, Trump advisor Anthony Scaramucci said that the new administration isn’t looking to “rip up NAFTA” but rather to “right-size it and make it fairer.”….that would seem to slightly contradict tweets from the President-elect himself who has directly warned, as recently as yesterday, that companies looking to offshore manufacturing jobs should expect a 35% import tariff.
One of the big technical red flags over the past few years has been weak internal participation. Particularly during the May 2015 highs we noted weakening internal structures that ultimately cumulated in the August 2015 down move. The correction in January and February was no exception. It is true that ever expanding global central bank intervention has continued to bring price back from the brink after each small correction and even now the latest rally has been brought about by promises of tax cuts, stimulus, etc. But here again we can note an incredible bifurcation that raises red flags. Most notably most of the gains have really come from financials stocks. Indeed 50% of the $DJIA’s recent gain has come from 2 stocks only: $GS and $JPM. Talk about a thin rally.
Candidate Donald Trump did the seeming impossible: get elected president while speaking truths that shock establishment policymakers. Such as criticizing the defense dole for South Korea, one of Washington’s most sacred cows. However, as his swearing-in nears, he is being strongly pressed to abandon his contrarian views….There’s no persuasive reason for the United States to continue protecting populous and prosperous allies. With the end of the Cold War, the Korean peninsula lacks any significant security relevance to America. A second Korean War would be horrid, of course, but would not threaten the United States in any way. Loss of a mid-size trading partner cannot justify a permanent garrison let alone willingness to risk full-scale conflict.
Perhaps most importantly, a policy limiting the ability of American companies to move funds outside of the U.S. would create a dangerous new set of government powers. Imagine giving an administration the potential to rule whether a given transfer of funds would endanger job creation or job maintenance in the United States. That’s not exactly an objective standard, and so every capital transfer decision would be subject to the arbitrary diktats of politicians and bureaucrats. It’s not hard to imagine a Trump administration using such regulations to reward supportive businesses and to punish opponents. Even in the absence of explicit favoritism, companies wouldn’t know the rules of the game in advance, and they would be reluctant to speak out in ways that anger the powers that be.
The numbers, when it comes to healthcare costs in the US, are always stunning, and the report by the Department of Health and Human Services, published by Health Affairs, doesn’t disappoint. In 2015, healthcare spending surged 5.8% to $3.2 trillion: nearly $10,000 for every person in a population of 324 million. Healthcare spending rose from 17.4% of GDP in 2014 to 17.8% in 2015….. without the surge in healthcare spending, GDP in 2015 would have essentially stalled. And without the secondary industries feeding off the healthcare boom, such as the construction boom of healthcare facilities, GDP would have looked even worse.
Things aren’t looking good for Sears. The company is shutting down dozens of Kmart stores this month and two of its highest-ranking executives left this week in the midst of the key holiday shopping season. This comes following speculation among Sears and Kmart employees, suppliers, and several banks that the retailer will soon go bankrupt — something Sears has repeatedly dismissed.
While investors are focused on Italy, Bloomberg’s Mark Cudmore warns that another Mediterranean country is poised to grab their attention very soon. A currency crisis in Turkey is rapidly deteriorating, setting the stage for dramatic and unscheduled central bank action.