<blockquote>'In the competitive QE and currency debasement process, central bankers have blown the biggest equity and junk bond market bubbles in history. When those bubbles collapse (and they will, but at an undetermined time), the world will see another huge round of asset deflation, likely accompanied by significant price deflation.
In effect, central banks do not see their misguided price deflation and credit stimulus exercises as the very cause of the weak growth environment the world is in.'
- Mike "Mish" Shedlock,
China Renews Commitment to Global Easing Party; US Tightening by Force, October 23, 2015</blockquote>
'..By now we should recognize that failed experimental monetary management was the leading culprit in the so-called “worst financial crisis since the Great Depression.” So what’s at risk today from much more egregious monetary experimentation?'<blockquote>'These days, the Fed and global central bankers face a similar but much more precarious Bubble Dynamic: The Fed specifically targeted higher securities market prices as its prevailing post-mortgage finance Bubble (“helicopter money”) reflationary mechanism. This ensured that the Fed would again be unwilling to impose any monetary restraint before it would then become too risky to remove accommodation (Einstein’s definition of insanity?). In concert, global central bankers now aggressively accommodate financial Bubbles.
Global markets have the Yellen Fed petrified of even a little 25 bps baby-step nudge up from zero rates. Despite booming bond market Bubbles, a huge rise in stock prices, generally loose financial conditions and expanding economic recovery, the Draghi ECB Thursday signaled additional monetary stimulus was forthcoming (above the current $60bn monthly QE and near-zero rates). Global markets were overjoyed. In the face of much trumpeted financial and economic stabilization, booming corporate debt markets and significant ongoing Credit growth, Chinese officials moved Friday to again cut lending rates and reserve ratios. Markets were more overjoyed.
The halcyon days have returned. Powered by strong earnings from heavyweights Amazon, Microsoft and Google, the Nasdaq 100 (NDX) surged 4.2% this week. The NDX has now rallied 22% off August lows to within about a percent of all-time highs. The S&P500 gained 2.1% this week, closing just a couple percent below record highs. Bloomberg headline: “Junk Bond ETFs Break Monthly Flow Record With a Week to Spare.” And to be clear, that’s an inflow record.
Friday morning from Bloomberg: “$100 Billion Rally Coming in Google, Microsoft, Amazon Shares.” Tech Bubble 2.0 is raging, fueled by the loosest financial conditions imaginable – spurred along by speculative market dynamics and a global industry arms race arguably on a much grander scale than that of the late-nineties. Friday evening from the New York Times: “America’s Heartland Feels a Chill From Collapsing Commodity Prices.” The impact from the faltering global Bubble is spreading. Fed Bubble accommodation ensured incredible wealth has been freely lavished upon Silicon Valley, exacerbating the issue of “the haves and have nots” locally, regionally, nationally and internationally.
It’s certainly worth noting that market strength continues to narrow. The broader market this week badly lagged tech – especially big tech. In a financial management world desperate for relative performance, Fed-induced market rallies compel market participants to jump aboard the big outperformers. It’s exciting – dangerous late-cycle financial market dynamics.
..
Chinese officials missed their timing for reining in Bubble excess by years. It’s now a Hobson’s Choice of throwing everything at the faltering boom. Brief thoughts: The Chinese will need a couple Trillion (in U.S. dollars) of new Credit over the next year, then the year after and so on. Throwing enormous amounts of new Credit at a terribly maladjusted system will ensure epic maladjustment and a Credit Time Bomb. Normally, such dynamics ensure significant currency debasement. I would think in terms of a Credit and Currency Peg Time Bomb.
..
..By now we should recognize that failed experimental monetary management was the leading culprit in the so-called “worst financial crisis since the Great Depression.” So what’s at risk today from much more egregious monetary experimentation? With runaway Bubbles at risk or faltering around the globe, central bankers are left with a choice of pushing ever forward with monetary inflation and market manipulation – or coming clean. Clearly they believe they have no choice at all.'
- Doug Noland,
Hobson's Choice, October 24, 2015</blockquote>
Context<blockquote>
'As the bubble collapsed, banks and other financial institutions plunged into insolvency..'(Big One: 2015 - 2017) - 'The Fall of a High-Yield Fund Echoes 2007 Crunch'Banking Reform</blockquote>