As many have reported, the US Federal Reserve has issued a warning on inflated asset prices overnight as US stock markets hit another new record high yesterday. They said:
Prices of risky assets generally increased since the previous report, and, in some markets, prices are high compared with expected cash flows. House prices have increased rapidly since May, continuing to outstrip increases in rent. Nevertheless, despite rising housing valuations, little evidence exists of deteriorating credit standards or highly leveraged investment activity in the housing market.
Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.
Irrational markets are maintaining the exuberance that is preventing some from questioning the credibility of populist governments. It will not last. It's a threat to democracy whilst it does. Greed conquers all, and right now good governance is amongst those things which it overcomes.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Exactly, so, Richard. The Dutch speculated in tulip bulbs, the twenty first century elite in the even more ephemeral crypto currencies. The substance is immaterial if a market can be fabricated to speculate and that is surely the point, since global threats to financial stability are the consequence. The elite win in bull markets and bears, so crisis is desirable. The rest of us should be considering whether the commoditisation of absolutely everything should be allowed. States can stop it. Nothing else can.
While I agree with the sentiment here, at least stock markets do have a habit of correcting once it becomes obvious that values have stepped away from reality. It will hurt and may take a while, but the correction when it happens is often brutal, relentless and quick. A bigger problem are the markets that never fully correct or are never allowed to correct properly because it would bring everything crashing down. In the UK that is house prices. We have been in a bubble for the best part of 40 years. Total fantasy propped up by successive Tory Governments (and labour), the MP’s of which often have their own property empires. House prices, biggest pyramid scheme going. Soon as covid hit the Tories removed stamp duty and prices were off to the races. Criminal but I suspect well supported by Tory voters.
Mar P
In my life I’ve never seen a market correct all by itself.
It usually over commits credit in the pursuit of rental profit.
It usually has to have Government support and then externalises its consequences onto society.
What sort of ‘correction’ is that?
I question your use of language.