Irrational Exuberance Returns

Hussman offers a sobering analysis of the Fed's massive QE2. There's a lot of technical language, but here's what it boils down to:

In short, the main effect of QE2 has not been monetary but has instead been rhetorical - and that rhetoric may very well be nearly empty.

The key event related to QE2 wasn't its formal announcement, but was instead the Op-Ed piece that Ben Bernanke published a few days later in the Washington Post, which essentially advanced the argument that the Fed was targeting a "wealth effect" in stocks and other risky assets, in hopes of getting people to consume off of that perceived wealth. At that moment, Bernanke unleashed a speculative bubble in risky assets, and a selloff in safe ones. This has rewarded risk-seeking and punished risk-aversion, but it has also unfortunately driven the markets into an overvalued, overbought, overbullish, rising-yields condition that has historically ended in steep and abrupt losses.

Take away the recent QE2-fueled stock market "rally," and the great Housing Bubble of the Naughts, and the Dot Com Bubble of the Nineties, and I'm hard-pressed to remember a time we had any real, honest growth.

Do you remember?