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This sounds very rational but it is mostly wrong. Stock market like many other assets are driven mostly by credit cycles. Bubbles are created by natural credit
by rjkennedy98 6y ago
This sounds very rational but it is mostly wrong.
Stock market like many other assets are driven mostly by credit cycles. Bubbles are created by natural credit cycles. The vast majority of money in the USA isn't hard cash, its credit. And low interest rates and other things can rapidly expand the amount of credit. We are in a period of extremely low interest rates and quantitative easing as well as deficit spending by the government.
Hedge funds like Ray Dalio's track credit and do it to a precision that is widely regard as even better than the federal reserve.
https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0
- darawk 6y agoCredit cycles are orthogonal to the issue of market efficiency. Credit cycles do not prove that the market is irrational, quite the contrary. The problem with credit cycles is that we are not yet good enough at forecasting exactly when they will end, which is why the market rewards people like Dalio who do the research to try to work that out, but even they are often wrong.