Hussman: Head of the Snake - the Poisonous Gap Between Paper Wealth and Real Wealth

http://www.hussman.net/wmc/wmc160704.htm

the best moments for paper wealth are actually the worst moments for future investment returns... Despite Bernanke's assurances, speculation in mortgage debt had already changed the return/risk characteristics of the housing market, fueled by yield-seeking speculation in response to a Federal Reserve that dropped short-term interest rates to just 1% after the tech bubble collapsed. A market that had historically been safe and nearly immune from widespread loss ended up provoking the deepest economic crisis since the Great Depression. Likewise, speculation in equities, junk debt and even investment grade debt has dramatically changed the return/risk profile of these asset classes in recent years, to the point where they bear no resemblance to what passive investors might expect based on historical norms. When one stops to realize that the amount of global debt yielding negative interest rates now exceeds $12 trillion, it should be clear how extreme central bank distortions have become. To imagine that equity valuations have not already fully responded to this situation after years of yield-seeking competition is, quite frankly, ignorant both of reliable valuation measures and of financial history.''