I think the rules have changed also, in terms of macroeconomics. It is clear that the financial sector, which only 15 years or so ago was a relatively small service sector to the rest of the economy, has gotten way, way, way out of hand.
It had become a larger and larger proportion of the GDP--on paper--but much of this was smoke and mirrors driven by creation of more and more esoteric derivatives, then derivatives of the derivatives, etc. The face value capitalization of this flurry of paper was insanely inflated. Why? Because they could. Nobody was there to stop them, since Bush had, essentially, dismantled and disbanded much of the regulatory forces and infrastructure.
If you ask me, all this activity was totally fraudulent, and far out-Madoffed Bernie Madoff. Everybody knew that sooner or later, the Ponzi scheme must collapse, and everybody knew that the American public would be forced to ultimately finance the whole operation at an almost unimaginably high price. And so it has come to pass. Our great-grandchildren will be saddled with this debt. So, as the expression goes, we now know that by far the best way to rob a bank is to own one.
In my view, what we are seeing now can be viewed as a very sharp reversion to the mean for the financial sector. Hence, the rules for how business is conducted in the financial sector have changed, and that has consequences and implications for a host of other sectors as well.
But none of this has any direct bearing on how markets function. The markets will continue to function according to the same principles that they have for centuries. That's why I maintain that this time.....it is not different. The play, the actors and actresses, the plot, and the script remains the same. Only the theatre is different.
All IMHO, of course.....
Terry |
