Originally Posted by wab
Hussman goes over some basics this week that everybody should review:
The "Money Flow" Myth and the "Liquidity" Trap
Unfortunately, he doesn't discuss supply and demand of stocks and bonds, which are the real price drivers IMHO. Anyway, good bear food for bear thoughts.
He explains this about once a year. I learned what secondary auction markets are over 40 years ago in economics. The implications are quite clear. But I know people with millions invested who don't seem to take the time to think this through.
I do think that liquidity has a clear meaning, and that it affects people's propensity to ignore risk and bid up for assets. What liquidity means to me is low interest rates and easy credit. Under these conditions, if people haven't been smacked down good and hard lately, they will have the blood for speculation-even if they don't exactly characterize it in these terms. Another thing is that even bearish people like myself will bid up for assets somewhat, because we are afraid of currency destruction. Better to own something real, even if overpriced, than a bushel of depreciating paper.
A little to the side of this topic but relevant to interest rates and risk reality vs risk perception- I finally secured a copy of Hyman Minsky’s Stabilizing an Unstable Economy
. This book makes it hard to accept the assertion that modern management of the economy to avoid depressions has actually reduced risk. I am not finished reading yet, so I can't give a summary.