A Permabear Strikes Back

About my Grantham piece, he wrote:

“Does anybody mind a bubble that doesn’t go bust?”

Well, yes.

This is the foundation of MMT: for so long as the Fed has air in its lungs, that bubble will keep growing.

The problem is timing, as it ever was. Dollar losing its reserve currency status, increased wealth inequality that reaches a destabilization point, climate change finally reaching the halls of the rating agencies forcing a drastic reset.

The market has been in “postponement” mode for a long time. Making hay while the sun shines is sensible, but that “1/3 of the time” it’s in retreat often happens at a speed for which your reallocation methods will not be sufficiently timely.

Do you not think that a 20% or 30% mark down of the 65-year-old subscriber’s portfolio is a risk worth avoiding? Buying again after the “correction” may do very little for the retiree who is depending on that portfolio’s value, should it be collateralizing some borrowing (that may become a heavier burden as a result).

And that’s only assuming a correction. Looking at the debt levels across the globe, and the negative real rates of interest, suggests a deflation (and an asset reset) of much greater magnitude, at least as a possible risk.

Even without leverage, the market is (to my mind), primarily a casino.


I normally let this kind of thing blow over, having seen it dozens of times with always the same arguments that somehow never matter, i.e. the Fed will run out of ammunition, there’s too much debt, the dollar will lose its reserve currency status, and so on. All permabears cite the same repeating set of ten or so worries, none of which have altered the market’s long-term upward march.

But somehow they never mentioned a pandemic.

This time, I couldn’t hold back. The following was my reply to RJM Consulting:

Ah, RJM. Still stuck on the sidelines, I see. That might be impressive if you had gone there at recent price peaks, but you and I both know you’ve spent most of the past 13 years there. Subprime was your PTSD.

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You can learn more about the way I use leveraged ETFs in The Kelly Letter at jasonkelly.com

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