David Stockman Warns The Market’s “Chuck Prince Moment” Has Arrived… “Only More Dangerous”

Saturday, July 22, 2017
By Paul Martin

by David Stockman via Daily Reckoning,
ZeroHedge.com
Jul 22, 2017

On July 10, 2007 former Citigroup CEO Chuck Prince famously said what might be termed the “speculator’s creed” for the current era of Bubble Finance. Prince was then canned within four months but as of that day his minions were still slamming the”buy” key good and hard:

“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,” he said in an interview with the FT in Japan.

We are at that moment again. Only this time the danger of a thundering crash is far greater. That’s because the current blow-off top comes after nine years of even more central bank policy than Greenspan’s credit and housing bubble.

The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.

Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about “stimulus”, “accommodation” and guiding economies toward optimal levels of inflation and full-employment.

The truth of the matter is far different. The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to monetary fraud of epic proportions.

The massive injection of fiat credit has drastically falsified prices in the debt and money markets. Through the channels of cap rates, carry trades and corporate financial engineering, the prices of equities and all other risk assets, have been falsified too.

Bond and stock prices are way too high, and that reality has infected the very foundations of the financial system. Like the hapless Chuck Prince last time, today’s traders and robo-machines have lost all contact with the fundamentals of corporate performance, macroeconomic outlooks and the political risks of a Washington.

Traders today are just dancing – blindly. That’s why the Russell 2000 hit 1442 the other day, capitalizing the earnings of small and mid-cap domestic companies at 87.5 times.

That’s crazy in its own right. As measured by valued added output of the U.S. business sector, the main street economy – where most of these companies live — has expanded at a tepid 2.1% annual rate since 2002. By contrast, the RUT index has increased by 10% per annum since then.

At the same time, the level of speculation in the hyper-momentum tech stocks is even more stunning.

We are in the blow-off stage of the Fed’s third and greatest bubble of this century. Yet the stock market has narrowed drastically during the last thirty months, as is typical of a speculative mania. This narrowing means that the price-earnings ratio (PE) among the handful of big winners have soared.

The Rest…HERE

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