Herd mentality (and the greater fool theory)

Advisor Perspectives/John Hussman/10-19-2020

cartoon showing boat with nasty leak nation states aboard 1932

“Ultimately, the speculation drives prices high enough, relative to likely future cash flows, to virtually ensure zero or negative long-term returns on even those assets. But here’s the irony: everybody is happy. All anybody cares about is the ink on a piece of paper, or the pixels on a screen, that tell them that they own something of worth. Never mind that if they hold those assets over the long-term, they will earn nothing more. Never mind that in order to sell those assets, they will require someone else to step up to hold the bag. Never mind that if enough people attempt to sell without those greater fools absorbing the supply at nearby prices, a great deal of that paper wealth will vanish into thin air.”

USAGOLD note:  And the repercussions, history teaches us, befall people of all classes – rich, poor and in between – as the damage escapes Wall Street to the greater economy.  Hussman warns that the S&P 500 will go to the 1200 level – one-third its current level.  Though Hussman never mentions gold in this very long essay, he offers some very good reasons starting with the one sketched above.


Repost from 10-22-2020

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