Posted on 04/29/2015 12:41:49 PM PDT by concernedcitizen76
Kafka & Keynes
Mania in financial markets has raged so far out of control as to place them outside the realm of rationality, says former White House budget director David Stockman.
“There are no markets left in any meaningful sense of the word, just a raging casino infected with the madness of the crowds and the central bank pied pipers who mesmerize them,” he writes on his blog.
That madness is illustrated in the months-long rise of Chinese stocks and the rebound of McDonald’s shares last week, Stockman says.
As for China, the Shanghai Composite Index has soared 121 percent in the last year. “And what has transpired in the land of red capitalism during that parabolic move?” Stockman asks.
“Why everything has gone virtually straight south because the most fantastic credit bubble in recorded history is beginning to burst.”
When it comes to McDonald’s, the stock has jumped nearly 4 percent since Tuesday, despite a weak earnings report Wednesday.
That move can’t hide the fact that McDonald’s business model “is visibly failing (because people are tired of getting fat on its products), and has been for several years,” Stockman contends.
Bottom line: “this is a mania — an outbreak of herd irrationality that would make Graham & Dodd and any other true value analyst as welcome as a skunk at a garden party,” he says.
Meanwhile, as the Nasdaq Composite Index advances to a record high for the first time since 2000, it pays to look back at the dot.com bubble which burst that year.
The lesson: “investors weren’t wrong,” writes Wall Street Journal columnist Jason Zweig. “They just paid too much to be right.”
So, before you lose your lunchbox over the current Nasdaq rally, “make sure you aren’t repeating the mistakes of the past,” he says.
The problem 15 years ago, of course, was that “investors were so infatuated with how technology would transform the world that they were willing to pay any price to buy stocks connected with the Internet and telecommunications,” Zweig explains.
That focus now is on social media and other stocks connected to the “sharing economy.”
But, this sharing economy “is no different than the new economy of early 2000,” Zweig notes. “It will almost certainly turn out to be a huge boon for businesses and consumers. But it will wipe out investors who think no price is too high to participate.”
Kafka is the fellow to the right.
That's what I see.
Billy Ray: No thanks, guys, I already had breakfast this morning.
Mortimer Duke: This is not a *meal*, Valentine. We are here to TRY to explain to you what is we do here.
Randolph Duke: We are ‘commodities brokers’, William. Now, what are commodities? Commodities are agricultural products... like coffee that you had for breakfast... wheat, which is used to make bread... pork bellies, which is used to make bacon, which you might find in a ‘bacon and lettuce and tomato’ sandwich.
[Billy Ray turns and gives a long look at the camera]
Randolph Duke: Randolph
[continuing]
Randolph Duke: And then there are other commodities, like frozen orange juice... and GOLD. Though, of course, gold doesn’t grow on trees like oranges.
[chuckles]
Randolph Duke: Clear so far?
Billy Ray: [nodding, smiling] Yeah.
Randolph Duke: Good, William! Now, some of our clients are speculating that the price of gold will rise in the future. And we have other clients who are speculating that the price of gold will fall. They place their orders with us, and we buy or sell their gold for them.
Mortimer Duke: Tell him the good part.
Randolph Duke: The good part, William, is that, no matter whether our clients make money or lose money, Duke & Duke get the commissions.
Mortimer Duke: Well? What do you think, Valentine?
Billy Ray: Sounds to me like you guys a couple of bookies.
Randolph Duke: [chuckling, patting Billy Ray on the back] I told you he’d understand.
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