The Great Recession period is spoken of as a “liquidity” bubble. See my blog posting It’s a credit crisis, It’s a liquidity crisis! It’s a solvency crisis!. Are we now in an asset bubble that is bursting? This craziness in the world economies and the financial markets made me think of the Lawrence Welk TV (television) show. What a great entertainer he was and what a great family entertainment TV show he literally orchestrated. Lawrence Welk was a “big band” leader. Welk used a “bubble machine” while playing some of his orchestration pieces. Here’s a YouTube clip example of the opening of a Welk TV program.
But I stray from my subject…
The asset bubble that we are now experiencing is seen, by some, as a result of all the easy, cheap money provided by the governments and large financial institutions to solve the liquidity/solvency crises that emerged during the 2008-2009 financial crisis. In other words, all the quantitative easing (QE) programs implemented to stave off another Depression like that experienced during the 1930s.
What is an asset bubble? The Wall Street Journal article dated May 11, 2015, discusses The Federal Reserve Asset Bubble Machine:
Faith in the Fed’s easy-money policies has encouraged a dangerous complacency. The mantra on Wall Street is that good economic news is good news for the markets, but that bad news is also good news, because it will encourage the Fed to keep rates lower for longer. This has led to one of the longest rallies the U.S. stock market has ever experienced, without even a 10% correction.
The latest “bad news” of course has been the decline in China’s economic growth. How does China’s economy affect us in the U.S.? Here’s an article from Bloomberg.com:
U.S. Stock-Index Futures Decline After Steepest Slump Since 2011
For a little historical perspective on economic bubble machines, Frontline, that great documentary film company, has listed five famous bubbles at their site:
- Tulip mania (1630’s)
- The Mississippi bubble (1719)
- The South Sea bubble (1720)
- The Roarin’ 20’s in the U.S. (before the 1929 crash)
- The Japanese bubble (1980’s)
As always, where are we, the individual investor, when these bubbles burst? As much as we may or may not consider ourselves speculators vs. investors, I’m afraid everyone is morphing into a little of both. After all what can one do when his/her savings are earning zero interest!