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I'd have a slightly different take, recent changes in asset prices and the speculative frenzy are due to changes in monetary and fiscal policy since 2008. I'd i

I'd have a slightly different take, recent changes in asset prices and the speculative frenzy are due to changes in monetary and fiscal policy since 2008. I'd include the popularity of cryptocurrencies as speculative assets in that (they don't seem to have any other use-value). Asset prices have seen massive inflation in the last decade due to ZIRP, asset purchases by central banks on an unprecedented scale. The risk free rate has been zero for far too long, and this has directly led to people moving into more risk in order to try to get a return, any return at all. So asset prices, particularly risky speculative asset prices, are no longer judged on their fundamentals like cash flow, but are tightly tied to monetary policy instead. This is starting to feed through to prices of food and other commodities as price inflation as well. So now central banks (and the Fed in particular) have an invidious choice - crash the stock market and save the real economy, or crash the real economy via inflation and save the stock market. The Fed just suggested they would take away the punch bowl from assets a little earlier than planned, so the party is over and people are scrambling for the exits - that will continue this year. This impacts tech stocks which are not making money and not likely to make money, and speculative assets like bitcoin which money has piled into due to Fed policies. We've seen this story before, we know how it ends.

shard 5y ago
That's very interesting, could you answer a few questions, or point me to some resource which explains in more detail? 1. How does this story end? 2. Which Fed announcement are you referring to? That rates will be raised? What do you mean the party's over, that speculation will decrease and prices will drop? 3. "This impacts tech stocks which are not making money and not likely to make money" You mean that this will impact stock of tech companies which are not profitable, since their stock values are speculative, and not that tech stocks won't make money, right? 4. So that means the Fed has chosen to crash the stock market and save the real economy, right? And by that statement, you mean that the Fed will curb speculation in order to stop price increases in food and other commodities? 5. How and why does rises in prices of risky speculative assets trickle down to rises in food and commodities prices? Is this because some part of the market gets out of the high risk assets and start bidding up lower risk assets? Is this true in general, that price increases due to too much speculation in one part of the market will eventually spread to everything else?
- grey-area 5y ago
  1. IMO it ends in inflation and crisis or stock crash and crisis, it's created a very unstable system addicted to fed stimulus. Possible of course that the fed can keep printing and try to prolong the agony a little longer. 2. For the last few months and more strongly recently the Fed has been signalling that they are going to taper stimulus, hence the rocky ride in the US stock market (driven to spectacular highs over the last decade by Fed purchases of treasuries and even corp bonds).[1] 3. US stocks in particular have not been valued on fundamentals in a long time - the indexes are propped up by a small group of tech stocks which are very overvalued, even world indexes are imbalanced in this way (50% US, 2% Apple for VWRL for example). 4. Well so far, they will doubtless have some wobbles on the way and may even reverse position completely as they have in the past (see 2013 and 2018 withdrawal of QE below [2]). This prevarication IMO just makes the eventual shock when they have to withdraw it even greater, and/or devaluation of the currency worse. They may choose to devalue the currency further so that nominally stock prices stay level, but that leads to inflation... 5. I don't think the two are linked, save that commodities are also linked to monetary and fiscal policy which has bid them up to unsustainable highs and led to unrest around the world (after 2008 and now again as price inflation rises). Sorry if that was unclear, I meant the Fed policies were starting to feed through to inflation. To be fair to cryptocurrencies like Bitcoin, this is precisely the sort of market distortion and financial repression it was created in reaction to and attempts to solve, it's just unfortunate it was unsuited to use as a currency and has been taken over instead by speculative carpet baggers intent on fleecing others. [1] https://www.reuters.com/markets/europe/wall-street-closes-sharply-lower-hawkish-fed-minutes-2022-01-05/ https://www.reuters.com/markets/europe/wall-street-closes-sh... [2] https://www.investopedia.com/terms/t/taper-tantrum.asp https://www.investopedia.com/terms/t/taper-tantrum.asp
  - _57jb 5y ago
    The last point you made about cryptocurrencies fleecing others bit built with intent to prevent market distortion is dead on. People getting into crypto in fratboy style have gone on the rollercoaster and often are pushing it to their desires. In the history of money (I'm talking U.S. at this point but other countries have their story) this carpet bagging happened earlier on... we've just been using it long enough that the story was forgotten and long before our time. I'm referring to the Gold Reserve act Executive Order 1602 of 1933 where gold was required by law to be turned in at an exchange of $20/oz and a year later jacked up to $35/oz an ounce. This decoupled the Federal Reserve from backing credit with gold, etc. The story continues but you get my point. https://en.m.wikipedia.org/wiki/Executive_Order_6102#:~:text=Executive%20Order%206102%20required%20all,in%202020)%20per%20troy%20ounce https://en.m.wikipedia.org/wiki/Executive_Order_6102#:~:text....

shard 5y ago

That's very interesting, could you answer a few questions, or point me to some resource which explains in more detail? 1. How does this story end? 2. Which Fed announcement are you referring to? That rates will be raised? What do you mean the party's over, that speculation will decrease and prices will drop? 3. "This impacts tech stocks which are not making money and not likely to make money" You mean that this will impact stock of tech companies which are not profitable, since their stock values are speculative, and not that tech stocks won't make money, right? 4. So that means the Fed has chosen to crash the stock market and save the real economy, right? And by that statement, you mean that the Fed will curb speculation in order to stop price increases in food and other commodities? 5. How and why does rises in prices of risky speculative assets trickle down to rises in food and commodities prices? Is this because some part of the market gets out of the high risk assets and start bidding up lower risk assets? Is this true in general, that price increases due to too much speculation in one part of the market will eventually spread to everything else?

grey-area 5y ago
1. IMO it ends in inflation and crisis or stock crash and crisis, it's created a very unstable system addicted to fed stimulus. Possible of course that the fed can keep printing and try to prolong the agony a little longer. 2. For the last few months and more strongly recently the Fed has been signalling that they are going to taper stimulus, hence the rocky ride in the US stock market (driven to spectacular highs over the last decade by Fed purchases of treasuries and even corp bonds).[1] 3. US stocks in particular have not been valued on fundamentals in a long time - the indexes are propped up by a small group of tech stocks which are very overvalued, even world indexes are imbalanced in this way (50% US, 2% Apple for VWRL for example). 4. Well so far, they will doubtless have some wobbles on the way and may even reverse position completely as they have in the past (see 2013 and 2018 withdrawal of QE below [2]). This prevarication IMO just makes the eventual shock when they have to withdraw it even greater, and/or devaluation of the currency worse. They may choose to devalue the currency further so that nominally stock prices stay level, but that leads to inflation... 5. I don't think the two are linked, save that commodities are also linked to monetary and fiscal policy which has bid them up to unsustainable highs and led to unrest around the world (after 2008 and now again as price inflation rises). Sorry if that was unclear, I meant the Fed policies were starting to feed through to inflation. To be fair to cryptocurrencies like Bitcoin, this is precisely the sort of market distortion and financial repression it was created in reaction to and attempts to solve, it's just unfortunate it was unsuited to use as a currency and has been taken over instead by speculative carpet baggers intent on fleecing others. [1] https://www.reuters.com/markets/europe/wall-street-closes-sharply-lower-hawkish-fed-minutes-2022-01-05/ https://www.reuters.com/markets/europe/wall-street-closes-sh... [2] https://www.investopedia.com/terms/t/taper-tantrum.asp https://www.investopedia.com/terms/t/taper-tantrum.asp
- _57jb 5y ago
  The last point you made about cryptocurrencies fleecing others bit built with intent to prevent market distortion is dead on. People getting into crypto in fratboy style have gone on the rollercoaster and often are pushing it to their desires. In the history of money (I'm talking U.S. at this point but other countries have their story) this carpet bagging happened earlier on... we've just been using it long enough that the story was forgotten and long before our time. I'm referring to the Gold Reserve act Executive Order 1602 of 1933 where gold was required by law to be turned in at an exchange of $20/oz and a year later jacked up to $35/oz an ounce. This decoupled the Federal Reserve from backing credit with gold, etc. The story continues but you get my point. https://en.m.wikipedia.org/wiki/Executive_Order_6102#:~:text=Executive%20Order%206102%20required%20all,in%202020)%20per%20troy%20ounce https://en.m.wikipedia.org/wiki/Executive_Order_6102#:~:text....