I feel compelled to pass along these comments from Doug Noland’s latest Credit Bubble Bulletin and, while reading them, it might be useful to recall what Mark Twain once said about history rarely repeating, but often rhyming (or something like that).
Throughout the financial markets, Bubble excess seems to turn more conspicuous by the week. From star hedge fund manager David Einhorn: “There is a clear consensus that we are witnessing our second tech bubble in 15 years. What is uncertain is how much further the bubble can expand, and what might pop it.” Obvious Bubble excess in the Credit market also garners increased attention. Bloomberg quoted Apollo Global Management co-founder Marc Rowan from this week’s Milken Institute Global Conference: “All the danger signs are there of a future crisis. We’re back to doing exactly the same things that were done in the credit markets during the crisis.”
It’s been my view that a going on six-year old “global government finance Bubble” last year suffered its first subprime-like cracks (EM and China). It’s worth recalling Citigroup CEO Chuck Prince’s infamous quote from July 2007 (via the FT): “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.”
Why was Mr. Prince – and about everyone else – still dancing in the summer of 2007 – when it seemed rather clear the environment was in the process of changing? Because there was so much money to be made. Because the cautious were being left in the dust. Because it seemed irrational not to be participating in one of the most lucrative financial backdrops ever. Because not participating in the industry boom was career jeopardizing. Because, as Keynes noted a long time ago, if you’re going to be wrong you’d better be wrong right along with the group. The exuberant Crowd had convinced themselves that the Fed had everything under control (“Would never allow a housing bust!”)
Of course, Fed chief Janet Yellen will trudge up to Capitol Hill this week to answer lawmakers’ questions about the health of the U.S. economy and, in the process, she’ll probably have some soothing words for whatever currently ails financial markets, all part of what is now being called the Greenspan-Bernanke-Yellen Put (that works most of the time, but when it doesn’t, there’s hell to pay, as Ms. Yellen will learn at some point).