Dr. Rasmus delves deeper into this past week’s US and global stock crash. Is it another 2008? Or more like the dotcom tech bust of 2000? Rasmus argues the current decline has characteristics of both 2000 and 2008 and may be therefore even more significant. How tech stock speculation drove 2000 and how property based financial speculation-engineering in derivatives drove 2008. Rasmus explains the role of the new derivatives: ETFs/ETNs/ETPs (the new subprime mortgages-CDO-CDS), and how new developments in recent years of passive index stock buying, momentum trading, and ‘Quant’ hedge fund automated algorithm selling is the new dangerous combination. Rasmus then discusses the three level of causation behind the stock bubble and now bust: precipitating causes during last week; medium term enabling causes of Trump tax cuts, stock buyback and dividend payouts, return of massive stock margin buying, and more fundamental causes of central bank policies, corporate debt financing, and the longer term relative shift to financial asset investing globally. Rasmus warns to beware of continued derivatives volatile trading tied to stocks (ETFs, Risk Parity, Vix options), Emerging Markets’ currency and capital flight, China currency devaluation, and highly leveraged US junk bond dependent ‘zombie’ companies, now 37% of all US corps. (Next week: Is there really a recovery of wages in the US? And maybe more on finance markets).
