Causing Bubbles and Crashes

Yesterday's 3% or so drop in many indexes across the world made News Reports wake up to the fact that the markets are falling.

The Reports blame the slump on the Ebola virus and unsatisfacory reports on global economic growth. Alas, they are misinformed. These items in the news may have been an extra sitmulus, but the correction that is already under way. Zero interest and Quantitive Easing pressed prices to their present unsustainable levels, from which they must fall irrespective of economic performance.

However, if the economic report continue bad, the bottom of the correction may be lower than we would otherwise expect. Well-performing economies would arrest the correction at around 1300, whereas economic bad news could do as it did in 2007-8 and send the price crashing through the long-term support line, wiping more than 50% off prices at the apex.

The bubble in share prices reminds me of the bubble in Irish house prices leading up to the banking crisis in 2010. Two decades previously, government tried to stimulate a slack housing market by tax incentives. The incentives worked well, but were not discontinued when the housing market recovered, but continued in place, with the effect of over-stimulation and causing the housing bubble. The present high price of stocks and shares is a bubble: it is the result of Policies brought in by America in December 2008 (QUANTITIVE EASING and ZERO INTEREST RATE POLICY). Intended to rescue the economy, it rescued the Stock Markets. From the point of view of the Stock Markets, it would have been better if the stimulus had been removed as soon as the indexes moved above the long-term Support Line. Instead it was continued in place to cause the bubble.

See my previous post
 Market to Bounce or Fall  for further discussion.

Election time - what's the job?

Tomorrow I will vote for persons who:

• At local level, will seem to be able for the endless meetings and get a grip on how things are actually achieved (spoofing or Complaining really don't solve all those continual nitty gritty problems)
• At European level, will have the wit and application to do the job, which entails reading detailed legislative proposals concerning environmental standards, consumer protection, trade, and employment law (but not about health, education, housing, law & order or defence); as well as being part of international delegations and receiving outside delegations, confabbing with groups and alignments within the parliament, and meaningfully relating back to me, and their other constituents, I mean giving an account of how they rolled up their sleeves and achieved meaningful results.

The work of parliament and council is not glamorous; it is continuous and detailed. As to the headline policies, my mates in the pub account for these aspects satisfactorily. It is the other guys we need on the  council and in the European Parliament.