And now the expansive mindset needed to propagate even fake rallies has succumbed to the growing likelihood of a severe global downturn. Nor is there a way for the central banks to significantly taper their exposure to worthless paper on their books for tens of trillions of dollars any time soon. Worse still, their foolishness has finally awakened a beast they cannot control — i.e., the dollar, a market so big that it dwarfs all other securities markets combined. Investors know this and are no longer cocksure that any asset acquired today will fetch a higher price tomorrow. Their expansive mood has swung to grimly contractionary, producing a get-ready-for-winter scramble to distribute stocks and cash out of assets. Portfolio managers may be less eager to exit than individuals at the moment, but the coming tsunami of redemptions will ultimately turn the portfolio giants into wholesale sellers of shares. Sell to whom, you ask? When Black Rock, State Street and Fidelity are the sellers, hopeful talk of a bottom will be little more than fantasy.
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I’ve been reluctant to give permabears the all-clear because, being one myself, I’ve seen the bull market roar back from death a dozen times since 2009, turning my smug eulogies into embarrassments. The most punitive and outrageous of the rallies was the monster eruption begun in March 2020, when stocks exploded from the depths of pandemic fears. What a fooler that was! Who could have guessed that prices for nearly everything were about to soar? A friend who lives in a South Jersey resort sold his home for $1.8 million, thinking he’d be able to buy it back for half that in a year or two. Instead, six months into the Covid lockdown, the house was worth $2.4 million and beyond his reach for a buyback. He’s living in an apartment now and may yet get his wish if real estate prices collapse in the current, deepening recession. Another friend brought his dream vacation home in Naples FL for $4 million, but readily parted with it when a giddy fool came along eighteen months later and offered him $7 million for it.
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