Let's Pretend

Step right up and don't be shy
'Cause you will not believe your eyes
--The Tubes

Nice piece by John Hussman on the overvalued nature of the stock market plus our 'extend and pretend' approach for accounting for financial assets. 'Extend' the period by which firms can use overinflated values for the assets on their books (in the meantime doing things that might actually jack them higher, such as the carry trade using free money from the Fed), and in the meantime 'pretend' that the banking system is solvent.

Simple, really, and based on fantasy games we conjured up as kids.

The question, of course, is how long such pretense can last. Dr John wonders whether the game won't be up soon. Others think the fantasy could persist for years, thereby jacking stock prices to new all time highs while pretending that the emperor is wearing clothes.

position in SPX