I’m attending a convention from now through Wednesday, so expect a lot less activity here than has been the norm lately.

Regarding the markets, it is still my strong belief that we are in the process of making a top to last for many years, on a weekly as well as yearly and even decadal scale, since the prices of financial assets prices are still stretched far above levels that could be justified by expected returns. History is not kind to buyers of stock markets yielding 2% or real estate yielding a gross of 5%.

Society used to go through these episodes of financial mania briefly and locally. The South Seas bubble in England lasted a couple of years:

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Close-up of 1720:

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The earlier tulip affair in the Netherlands started in the fall and was over by spring:

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In modern times, perhaps due to the ease of access that technology has brought to the markets and the emergence of a large middle class (though actually those explanations sound like feeble professorial BS), or possibly because of longer human lifespans (this I find more probable, as people need to collectively forget past experience in order to repeat it), we have the phenomenon of giant, recurring financial bubbles to accompany the credit/Kondratieff cycle.

One also has to note that the first such modern super-bubble began just a decade after the founding of a highly inflationary central bank, and that there has been no hard money nor hard-nosed policy since soon thereafter. After all, inflation is the expansion of money and credit, which always begets bubbles that are necessarily followed by crashes. These all-encompassing bubbles in everything are not healthy — they misdirect assets, squander wealth and shorten the time preference, which is no small thing. The young and already rotting cities of 20th-century-built North America are tawdry in comparison to those of Europe constructed in an age when real wealth was being accumulated at a blazing pace (yet inflation was non-existent or negative). People looked and planned further ahead, and built for yield and posterity, not to flip.

Here is a 200 year view of stocks priced in gold (DJIA for the last 100 years — approximation prior):

Marketoracle.co.uk

Isn’t that an interesting pattern? Looks like we’ve been in a huge megaphone since about the time of the Great War. The target for this leg is a Dow:Gold ratio of about 0.75. Dow 600, gold $800? Dow 11,000, gold $260 would have seemed pretty crazy in 1980, wouldn’t it?