lbsterling

Remind Me Again, What's a Bubble?

I'm all in favor of thinking about things in a new light, so I like the opening section of your article:
That the problem was mispriced debt rather than too much debt has the ring of truth.

But top to bottom I'd say your further analysis has too many flaws to be useful.

"Under this analysis, it would simply cost more as investors demand higher interest. And if so, what does that say about corporate earnings? Answer? Well, there is none. If consumers have to spend more on interest, maybe they borrow less and buy fewer things."

Higher interest rates during a downturn will be crushing, that's the "checkmate" scenario. Corporations will have trouble financing investments, and consumers, as you yourself suggest in the quote, won't be able to consume until deleveraging has run its course.

Hence the Fed's efforts to keep rates low.

Further, I think it's say that the relationship between yields and the S&P in the past 10 years is not going to be very useful for what happens in the next 10 years.

Finally, someone else above pointed out, a lot of the money IS gone _ and the Fed is working hard to re-create it, with results that are as yet unknown.

So thanks again for the article _ I will be curious to see how your thinking develops.