Shall We Play a Game?

John Hussman writes:

Nearly every New Years Eve and Fourth of July, you’ll read news stories about boats that capsized, often with terrible consequences. Why? Everyone was so eager to watch the fireworks that they all piled along one side of the boat. At that point, even a modest shock, like the wake of another passing ship, became enough to flip the boat over. It’s a predictable phenomenon, but tragically, people don’t seem to learn from it.

He adds getting market specific:

As a sign of how warped this celebration has become, Gordon Chang appeared on CNBC on Friday, noting the troubling difference between exports reported by China to other countries and imports reported by other countries from China, as well as the inconsistency between low cargo numbers and high reported export numbers. In response, the CNBC anchor said – and I am not making this up – “You know Gordon, I agree with you, but let me take a different tack on this, alright? Let’s say you believe that China is making up the numbers. But if the stock market there keeps going up because of it, and you believe the government will keep priming the numbers, isn’t that sort of a reason to bet on the Chinese stock market?” That question is like encouraging people to invest with Bernie Madoff because he keeps “putting up the numbers.” The troubling similarity between the late-1990’s bubble, the housing bubble, and the present central-bank induced advance is that the speculative nature of each was largely recognized, but people took the same attitude: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance – We’re still dancing.” Those were the famous last words of Citigroup’s former CEO Chuck Prince at the mid-2007 peak, just before the financial markets began to implode.

Shall we play a game?

You might like my 2017 epic release: Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets (Fifth Edition). Revised and extended with twice as much content. Out April 24th 2017.