Financial Advisor wrote:
Uncle Beemer wrote:
Hurricane to hit market?
I guess this week's record highs answered that question.
"Thereâ€™s an apocryphal story that in 1787, during the journey of Empress Catherine II to Crimea, Prince Grigory Potemkin, the governor of the region, erected fabricated villages along the Dnieper River, which would be disassembled after she passed by, and rebuilt again downstream overnight."
"When one examines the collapses of the tech bubble and the housing bubble, itâ€™s evident that one of the central elements of those collapses was the gradual recognition by investors that the overvalued pieces of paper they were holding were actually little Potemkin Villages; temporarily glorious and impressive on the surface, but backed by much less than investors had imagined was there. What sort of â€œcatalystâ€ is needed for a Potemkin Village or a Ponzi scheme to disappoint? Only the gradual or sudden discovery of the reality behind it: the recognition that there is no â€œthereâ€ there."
"Investors presently appear to be taking past investment returns and economic growth at face value, without considering their underlying drivers at all. My impression is that while the U.S. may very well encounter credit strains or other economic dislocations in the coming years, nothing is actually required for yet another equity market collapse except the gradual recognition by investors of a reality that already exists. Strip away the effects of short-term cyclical factors that have now been largely exhausted, and it becomes clear that the financial markets have again become a Potemkin Village."
John Hussman, Weekly Commentary, 9/11/2017