How Extremes Become More Extreme, Triggering Collapse

by Charles Hugh Smith
Of Two Minds

The extremes are not visible to the vast majority of participants, and so they are exposed to high levels of risk they don’t see or understand.

The question “Is the weather becoming more extreme?” opens up endless debates because our perceptions may differ from actual measurements since we’re prone to recency bias, where what happened recently looms much larger than events of a decade or century ago.

In the realm of economics and markets, our perceptions of extremes are backed up with data: based on the ratio of stock valuations to GDP and corporate sales (not profits, because profits are easily gamed) to GDP, the stock market has never been as over-valued as it is today.

The rally in global stocks off the March lows is the steepest such rally ever. The unemployment rate is equally extreme, as is the Federal Reserve’s money-printing: $3 trillion has been created out of thin air since February 26 as the Fed’s balance sheet rose from $4 trillion to $7 trillion.

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