The beauty and the beast in the imbalance of greed and fear.
Greed is often fleeting and flamboyantly self destructive. Fear is disturbingly more permanent and soul destroying.
Those that brag of profits made in their current leveraged escapades will likely cower to the overriding weight of fear in the not too distant future.
I foolishly denied the possibility of greed spreading as much as it has. I believe this may be a temporarily mistake, however few understand the potential for the grasps of fear to pull them below any rational levels for permanent life destroying loss.
When fear grips, rationality has as much place in markets as it does in manic bubble times.
For someone who saw this frantic panic in 2012 in the US property markets and bought large four bedroom houses for the equivalent balance of a credit card, I can assure you the downside is not the small ten or twenty percent range most experts will assure.
Greed is not permanent, whereas fear can perversely remain the dominant force of investors for the remainder of their lives. For those that have ever seen the spending and borrowing habits of survivors of the great depression, they easily understand the permanence of fear versus the ephemeral nature of greed.
The current mania in leveraged property and bank stocks is a low probability of having a fairy tale ending. Having the highest mortgage and personal debt levels in the world moving into one of the worst structural declines in many decades looks very scary to those that price risk rationally.
I have recently been describing what is likely coming to Australia as a horror movie. I have no idea how revolting the horror is likely to be and no one does, however I am actively moving to allow my clients to be sitting in the audience with a bag of deliciously salty popcorn rather than acting as a main character in the movie. The majority of Australians are fighting for a lead role.
If the Australian dollar falls precipitously to levels seen before the mining boom of closer to 50c, then Australia may dodge the disastrous outcomes of previous property bubbles of similar metrics. Sadly, this is looking less likely as the world enacts insane negative interest rate policies. Glen Stevens needs to be wearing a tin foil hat to compete with his reserve bank peers. So far he looks far too sane.
The exact timing of fear and greed is impossible to predict. The yin and yang nature is absolute. There has never been a permanent market obsessed with greed that has not been trounced by fear at some point. Those that allocate capital with the assumption that 17 years of greed is permanent will be destroyed at some point in the near future.
I certainly wouldn’t bet my entire financial future as many are doing on the permanence of greed. Particularly when there are still a few places to invest where fear slightly outweighs greed. “Few” and “slightly” being the operative words.