They say that economists predict not because they know, but because they are asked. I do not know and I was not asked, but that won’t necessarily keep me quiet.
I have been told that you can never get enough of what you really don’t want. If you want peace-of-mind, happiness and serenity, you may think that getting more stuff, esteem, money or job status will get if for you. So, you concentrate on getting more stuff, esteem, money or job status thinking that it is the cure, but unfortunately peace-of-mind, happiness and serenity still elude.
But, are there some things that you can get much more of than what you want? How about zero interest rate money? Few want more of that yet the Fed gave it to them - good and hard. Convinced that getting what they wanted financially could not be found in zero interest rate securities, they buy assets and continue to buy assets at dizzyingly high prices. Maybe this new tech stock with an app that will find babysitters is what they need even though it has a market value of $30 billion and sells at 50 times 2026 projected sales. That is better than zero interest rate money isn’t it?
If the Fed really, really starts raising interest rates and selling its $9 trillion of assets, people may start finding something that they really want besides a company promising to produce electric battery powered military tanks. How about a fixed income security that has a rate appropriate to risk and inflation? As such securities are available, the dilemma of choosing between a hideously priced security and a fixed income security that doesn’t cover the impact inflation is solved.
And since the obscenely priced stocks start to fall in price because of rising interest rates, war, inflation, recession and supply chain disruptions, the stocks of other “good” companies fall as well, resulting in a punishing bear market. Selling is what investors do when they get scared.
But, there will come a sweet day when price independent of any value whatsoever is instead replaced with price that is informed and influenced by value, conservatively stated. However, this will follow a severe amount of pain for those who abandoned zero interest rate money for any security, no matter how preposterous its price.
There, my unasked prediction.
PS – I know that everyone on this board knows all of this; it just seemed like fun to write.