ah yes, very good read. I suppose the tendency to blame the Fed for all aliments comes from their inability to fix all problems... which is understandable since it is certainly a balancing act. Though it does hurt to see them always side on the short-run.
Just curious, but do you really believe the Fed isn't responsible for past stock bubbles? Of course, there are many internal and external factors to consider but from the top down it sure does look like their hands are red.
No, I don't believe that the Fed was responsible for the tech stock bubble or the housing bubble. Investors are - they bid up the assets. Keep in mind that for the $X Trillion of market cap lost when tech stocks crashed -- that's money that was made by someone else that was smart enough to sell before the top.
However, speculative asset pricing is still a major concern of the Fed when it impacts the rest of the business cycle. They just, quite frankly, don't know how to address the problem very well. No one does, at least not within the confines of a free-competitive market.
My OWN speculation, on the subject of momentum investing and speculative pricing is that these bubbles will only continue for a few reasons. Fundamentally, momentum & bubbles happen only when lots of people/capital learn of the same opportunity at the same time, and among those people have to be those that don't know how to value the opportunity.
First, the internet has only recently allowed people the ability to instantly receive and share information around the world. We could all read of some news story about a niche industry in Thailand, and shares in those businesses would multiply overnight. Further, going back to "human nature", people respond to changes in price -- unknowledgable investors buy stocks going up, sell those going down. The internet allows for much broader communication of price changes however, exacerbating the effect.
Second, wealth distribution is widening for numerous reasons. But the net result is that there is more liquid capital in the world that can quickly move from one hot sector to the next.
Third, securities investing is now available to anyone cheaply. Particularly through new ETF-type products, people can invest in just about anything from home or work. The more unsophisticated investors, the more likely that asset prices will run up from investors basing their decisions on price and not value.
(these are just my OWN speculations. And no, I'm not a momentum investor
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