Why is the stock market turning down now? Why the current carnage?
In the simplest terms the current chaos is a classic and colossal example of what is called the Austrian Business Cycle Theory.
Basically malinvestment is induced by artificially low interest rates. Businesses malinvest. People malinvest. Governments malinvest. And then sooner or later all this malinvestment, investment which doesn’t have the sound foundation of real market based prices underneath it, collapses. All the baloney comes to the fore. Reality hits. Pain hits. That’s what we are seeing now on a massive scale.
What is of particular concern is that we’ve seen this before, very recently. Think 2008. And we clearly didn’t learn our lesson. When the Crash hit central banks doubled down with “stimulus” and quantitative easing which kept all the prior malinvestment (or at least much of it) from Greenspan’s artificially low rates from being cleared from the system. So we now must deal with all the malinvestment created post-2008 Crash as well as much of the malinvestment from the pre-2008 era.
Nothing is free. Everything has a cost. Especially poor decisions in the halls of central banks.
The pain seems never-ending for commodities, hurt again by the weakest Chinese factory data since the global financial crisis. The Bloomberg Commodity Index slid to its lowest level since 2002, while oil had the longest run of weekly declines in almost 30 years. Copper, nickel, zinc, aluminum, tin and lead also fell. BlackRock estimates commodity industry ETFs have seen outflows for five straight months.