Things are getting a bit interesting.
Frauds can only be maintained for so long, because they require energy and motivation to maintain. While some "malinvestments" are not outright frauds, they are fraudulent in the sense that they are sold as having support, but in reality the support has yet to be generated. If the support is achieved, the project is a success over some time period, but if the support is inadequate, the whole thing goes to pot.
Lack of support is what I think we are currently seeing across the board, from China to Brazil to the USA. For whatever reason, people are no longer buying into the "system", the "myth", or whatever one chooses to call it. The virtues, financial and otherwise, of many projects, many "buying opportunites", are blown way out of proportion, hence the "over-valuation" that Igy rails about.
What causes this erosion in support, and how long can a surge in support sustain a structurally flawed market? Anybody who knows anything understands that we are living on borrowed time, and have been especially since Lehman...and yet the markets are even today significantly ahead of the pre-Lehman peak. So what causes a support surge, and how long can it last?
This has been the topic of much interest for a great many years now, and there are many who have weighed in with their opinions and plans. My take (in part) is that all social systems require periodic infusions of naivete in order to continue. Both the .com and subprime market events were dependent on widespread support from a newer, naive class of participants. Is there such a class that will be able to be tapped going forward, even with the heavy demographic weight of the boomers looming large?
Of course there is. There ALWAYS is. This time it will be the millennials. As a group, they're just as naive as any other has ever been. These are post-war phenomena I'm talking about, BTW, eras where successive generations don't learn much from the experiences of previous ones, and eras that see successive erosions in the awareness and understanding of history.
Hang around kids, and you will understand. Time passes very quickly. These kids entering and in college now really don't even know anything about 9/11, all they see is photos and youtube clips, but it's not "real" to them. Also, subprime seems like it happened just yesterday, but to these kids, it was a lifetime ago; they are now young adults, for whom childhood was another life. They weren't aware of it during childhood, and it is not "real" to them today.
Can the participation of this generation be achieved before the next event, or in sufficient strength and depth to moderate the next event, and to generate support going forward? These are open questions. They will gain significant economic influence (and therefore necessarily participate) in the markets, when they begin to inherit their boomer parents' estates, if the boomers leave them anything. For now, many are actually supported by their parents, many of whom attempt some form of economic tutelage by purchasing them condos to manage, or showing them what they know of the working of the system via the establishment of trusts and trading accounts, even if initially of low value.
I think there will be another event, and soon, and that boomer parents will be reticent to transfer sufficient wealth to their progeny to enable their significant participation in the markets. The boomers always know better. They will screw people on their way in, and on their way out, too, by not ceding control. They will passivate the markets, and dampen any manifestations of support, at least for a time, until they either die, or reflexively hop back on the bandwagon.
Unless some sort of vast mobilization happens as a result of the US elections, I see a period of market malaise for at least 5 years, and maybe as long as 10. The millennials will try (they have no alternative), but faced with increasing taxes, drawdowns of social accounts, and creeping inflation, they will face headwinds that have not yet been faced in such a degree by their predecessor naive cohorts. Unless there will be some sort of massive positive disruption through something like the advent of practicable fusion, I see a "settling down" of the markets.
I don't want to call it a "stagnation", because I don't believe that the normal state of things is to constantly move forward, to constantly enlarge. There must be a time to take stock, to consolidate gains, to literally "invest" and "reinvest", meaning something other than speculating in the markets. I do think that we will enter a period where dividends rule the day, and where the instruments themselves are viewed as being for more for the preservation of capital and the right to dividends, than they are for capital gain.
I don't see it as a socially bad thing, if the "investment" and "reinvestment" is made wisely--in a better personal household that is more efficient and has/makes use of greater quality products with multi-generational lifespans; in real environmental cleanup such that less constant environmental remediation and intervention will be required going forward; in personal health and therefore self-sufficiency and autonomy from care systems; in greater self-sufficiency and the concomitant reduction in required inefficient government services; etc..
IMO if those types of things happen, things might actually be OK. The world will change and won't be the same type of flamboyant place we in the west have seen post-war. The salient issue today is how we get there, and what happens en route.
Government regulation needs to step up, but it never will as long as we have public-sector unions, with shop stewards controlling the government offices. Regulation needs to step up because those people who can end up pulling society out of the doldrums will be supplied by same naive, credulous millennial cohort that will also supply those who can be successfully use by those who would perpetrate frauds, schemes, and machinations. As in many things in life, what has the potential to be good also has the potential to be bad, it is all in how we choose to use it. It is regulation's job to work to achieve an imbalance in favor of productive and beneficial uses of the innocence of the millennial generation. Such an imbalance may not be the "natural condition", which is why it requires consistent work to maintain.
What to do in the medium term while these things sort themselves out? Contribute where and what you can to the end goals of an honorable and sustaining civilization, but keep an eye out for trouble, and be ready to bug out for a while. As the boomers say, "you only go around once"--which in their minds means abdicating any and all responsibility to anyone/anything but themselves, but which should instead mean that you should do what it takes to maintain your effectiveness in your contributions to the larger world that you wish to see.
There ARE alternatives in life to the markets. They need to transform into something more worthwhile going forward. Until that time you will have people like me who are in-and-out with no loyalty, and also people who are stuck in the system because they don't pursue alternative courses of action.
The markets are not the totality of society, even though they have seemingly increasingly been billed as representative of that totality. Even the WH and the Fed have recently made what I believe may be their first direct statements concerning their "responsibility" to effectively manage the markets, which IMO is a disaster waiting to happen. It almost seems inexorable that we as individuals should all be subsumed into the larger market construct that is currently in vogue.
Don't let it happen to you.