There’s No Bottom Until Frenzied Speculation Turns to Dust, by Charles Hugh Smith

At a true stock market bottom, nobody even wants to hear the words “stock market.” As Charles Hugh Smith points out, thanks to central bank intervention we haven’t had an organic stock market bottom for decades. From Smith at oftwominds.com:

Only when speculative sizzle attracts no buyers / marks will the bottom be in.

There hasn’t been a truly organic bottom in stocks in decades. Fifteen years of relentless central bank manipulation since the 2008-09 Global Financial Meltdown has persuaded punters that central banks will always save us should the market turn down because relentless central bank suppression of interest rates and expansion of liquidity (a.k.a. free money for financiers) are now necessary and thus predictably permanent.

Central banks have rescued punters from every market drop. This has pushed moral hazard to near-infinity: since we know the Fed et al. will rescue us, no matter how stupid or venal or risky our bets, then why not increase the leverage, risk and fraud at every turn?

Indeed, why not? With the central banks providing a permanent backstop, it would be foolish not to increase the size and risk of every bet.

Given this central bank-enforced supremacy of moral hazard, the only possible consequence has been the rise of speculation to truly dizzying heights, extremes of leverage and risk that are completely decoupled from the real-world economy.

In this Fed-managed fun house, cryptocurrencies started as jokes became worth billions of dollars–and despite a complete lack of utility, past present or future, these are still worth tens of billions of dollars.

The spectrum of similarly decoupled-from-utility speculations stretches across the entire global financial system. Valuations are based on central bank liquidity rather than real-world metrics such as sales, margins, profits or (gasp) improvements in productivity and real-world utility.

The speculative frenzy boils down to a simple dynamic: Sell the sizzle to a greater fool and pocket the profit. The greater the sizzle, size, leverage and risk, the greater the profits.

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