Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Crimson Ghost who wrote (64997)	4/4/2007 12:02:22 PM
From: russwinter	Read Replies (2) of 116555

Since you asked me that question on my blog, I will repeat my response here: Question: Why do you think global stock markets continue to do well despite the myriad problem you see developing in the real estate and mortgage markets? Answer: I've already written at great length about this, but would summarize: 1. Unprecedented risk taking going after low returns using huge leverage. They also have the misguided notion that this is all hedged, thus the markets have become synthetic. This is amplified and distorted even further because of "official" foreign central bank price insensitive purchases which Riskloves further piggyback using wildcat finance (lopsided high risk carry trades, etc). 2. The incentives of Bubble markets are all front loaded. By this I mean the Playas, Riskloves and criminal enterprises have no obligation to be prudent with other people's money and with the use of unregulated wildcat finance. They get paid fees, commissions up front for "making the deal", not for the outcome down the road. Riskloves are incentivized by all or nothing dice rolls which so far work because they end up engaging in the same trades (squawk box Robo-trading)in tandem. The subprime market is illustrative, the Pig Men created the junk and paid themselves handsomely and then it all blew up. Did the playas lose? Not really, their loot was already in the rat lines. Then the damaged goods are all priced fictitiously or hidden (see Milky Way) all over again resulting in no accountability. wallstreetexaminer.com Thus quasi-criminal and unethical conduct is rewarded not punished. Has some version of this always been the case? Sure, but not nearly to this extent. This is NOT the norm, the latest script is of biblical proportions 3. #1 and #2 has turned the markets into a price discovery mechanism as opposed to a discounting mechanism. wallstreetexaminer.com

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