For anyone that still believes TPTB are actually “geniuses in disguise,” I present exhibit #1; the financial “Maestro” himself, Alan Greenspan. His business career would make a great comic book; of how he started as an avid Ayn Rand disciple, penning Gold and Economic Freedom in 1966, before “turning to the dark side” upon becoming Fed Chairman in 1987. Clearly, the stars were aligned to create a true classic tragic hero – as just months after his appointment, a major stock crash occurred.
It was at this point, armed with full government approval (as evidenced by creation of the President’s Working Group on Financial Markets) that he forsook all he had learned, in the pursuit of wealth and power. Over the subsequent two decades – before handing the reins– he engineered the modern “alchemy” that has destroyed global economic activity, setting into motion the final throes of a doomed monetary system.
In Gold and Economic Freedom, he famously wrote the following, scathing criticism of the very system he later fostered. Be warned, this will be the most intelligent thing you’ll ever hear from a Central banker.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.
Thereafter, he made one intelligent comment in nearly five decades of public service; regarding the “Irrational Exuberance” he sensed in the late 1996 stock market. Of course, he did nothing about it; instead, holding the Fed Funds rate near multi-decade lows until the internet bubble popped – after which, he lowered it to nearly 0%, fostering the property bubble that subsequently destroyed the global economy in 2008. In fact, his justification for holding rates so low throughout the late 1990s equity bubble has become the mantra of those pointing to Central banker incompetence…
It is impossible to identify a bubble until after it has burst.
And to take this particular banker’s incompetence a step further, here’s what he said just after the Glass Steagall Act was repealed in 1999 (just before the market crashed), of the rapid growth of money center banks…
I believe the general growth in large [financial] institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically — I should say, fully — hedged.
–NYtimes.com, October 8, 2008
Not to mention, his comments on subprime lending in late 2004…
Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities.
–Federalreserve.gov, October 19, 2004
…and derivatives in mid-2005…
The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions. Derivatives have permitted the unbundling of financial risks.
–Federalreserve.gov, May 5, 2005
Worse yet, these sentiments were mirrored exactly by his protégé and successor, Helicopter Ben himself; who in said the following in 2002, upon become a Federal Reserve Governor.
The Fed cannot reliably identify bubbles in asset prices. Second, even if it could identify bubbles, monetary policy is far too blunt a tool for effective use against them.
–FederalReserve.gov, October 15, 2002
In his defense, the concept of “quantitative easing” had not yet been created. But then again, Janet Yellen certainly was aware of QE when she made the below comment last month at her Senate confirmation hearing. The perfect hedge, as she straddles the line between Greespan’s feigned ignorance, and Bernanke’s futility.
I think it is important for the Fed, hard as it is, to attempt to detect asset bubbles when they are forming.
–Janet Yellen, November 19, 2013
Anyhow, I thought it important to give a bit of background on the Maestro’s track record, before showing you his latest gem, espoused amidst a multi-million book tour.
This does not have the characteristics, as far as I’m concerned, of a stock market bubble. The stock price generally goes up about 7% a year for the long term. It didn’t go anywhere since October 2007, and the result of that is we’re just now breaching that. We have had no growth in stock prices for years.
–Bloomberg, November 27, 2013
In other words, he claims today’s equity surge cannot possibly be a bubble because the market is simply “catching up” to five years of poor performance. In other words, it’s like saying it can’t possibly be murder, since the suspect has had a clean record for the past five years.
To refute Bernanke’s foolishness, let’s start with the fact that over $10 trillion has been overtly printed by the Fed in the past five years; most of which, has been directly injected into speculative investments by the “TBTF” banks receiving these essentially free subsidies. Is it even remotely possible that such a quantity of printed money could have altered market dynamics a tad since 2007? Or how about the fact that the recent market surge coincided perfectly with the historic 2011 commencement of the “terrible money printing trio” of Operation Twist, QE3, and QE4?
Moreover, does it strike you as strange, Sir Alan, that nearly the entire growth in equity averages is attributed to soaring P/E ratios, as opposed to earnings growth? Or that by any objective measure, the gap between macroeconomic and equity performance has reached an historic high, per below? Let alone, amidst historically low Presidential approval ratings in all the world’s major economies?
How about record high margin debt – yes, higher than in both 2000 and 2007; amidst record hedge fund leverage?
Or better yet, a record low in bearish equity sentiment? Could it possibly be due to the moral hazard created by five years of maniacal money printing, market manipulation, and propaganda?
And finally, if anything shouts financial bubble louder than the ongoing mania in “crypto-currencies” like Bitcoin I’d like to know what it is.
Of course, the irony of the situation is that even after being attacked by TPTB for two straight years, there are still some that believe Precious Metals are in a “bubble.” Down 35% and 60%, respectively, since the Fed, BOJ, and nearly all Central banks started “turbo-printing” in late 2011, gold and silver are now trading at – unquestionably – their lowest valuations relative to the global money supply in recorded history.
Objectively, worldwide physical demand will reach an all-time high in 2013, yet not a peep about this historic development from the MSM. Conversely, all that’s reported of PMs is that their recent decline is due to a “recovering” economy and prospects for an end to QE. Yet, anytime the “t word” is even mentioned, stock and bond markets spasm uncontrollably – terrified of what a non-Fed supported financial environment might look like.
I first wrote of the “Precious Metals Anti-Bubble” back in February 2012 – with gold and silver prices dramatically higher than they are today. And thus, with prices well below the cost of production, amidst record global debt levels, money printing, and unemployment, use your own judgment as to what assets are currently in “bubbles,” and which aren’t.