This often takes place when investors are enjoying a trend (or mania) rather than genius or fair price discovery.
The fancy lads call this psychological phenomenon the Dunning-Kruger Affect, and I’d contend that many self-smug Fed Chairs and wealth advisors, as well as many
investors, are suffering from it now as they passively enjoy (and take credit for) a maniacal market rise.
This disease of false confidence spurred by false (i.e. artificial markets) is particularly the case for Janet Yellen, who is now heading from the Fed to the Treasury gold exchange .
with much applause.
Ah, how the ironies do abound. When it comes to monetary discipline, Yellen at the Treasury makes as much sense as Madoff at the SEC.
And no, this time is not different. It’s worse.
The level of current mania (Tesla to Bitcoin) surpasses prior bubbles, and the depth of the debt and economic (as well as political) weakness beneath it is now
greater than prior recessions.
With global debt now at an unprecedented $280T and combined corporate, household and consumer debt in the U.S. now at $80T, this in no time for losing one’s
mind (and portfolio) to the buzz of yet another Fed-driven mania.
In short, the Twilight Zone market is colliding with a Perfect Storm (psychological, financial, social, political).
Mean Reversion—The Great Humbler
All markets revert to the mean. It’s a law of markets as real and natural as gravity is to the laws of physics.
And math, as well as natural market forces, like the laws of physics, still matter.
Together, these forces stand in the background rubbing their hands as maniacal investors go all-in to chase a market top that would make the Matterhorn blush.
By example, math reminds us that the median PE ratio for the S&P is 17. Today, that PE ratio is a jaw-dropping 30.
Once (not if) this market reverts to its mean (as all markets do), this would place the S&P closer to 1500 or 2,000, where the real value investors can start buying
the bottoms rather than these dangerous tops, now poised to needle-peak further before they tank.

Leave a Reply

Your email address will not be published. Required fields are marked *