'How can markets remain ebullient? Because a worsening pandemic ensures additional fiscal and monetary stimulus. This is not about economic fundamentals or markets pricing a solid “V” recovery. It’s greed and FOMO (fear of missing out) – Monetary Disorder and a resulting runaway speculative Bubble. This game has been playing out for a while now. It’s an increasingly dangerous game – one that seems to be building toward some type of conclusion.''The second quarter was momentous for reasons beyond huge securities markets gains. Speculators and investors do “now believe central banks will exercise complete control over asset prices for the foreseeable future.” There is no longer any shred of doubt: Highly synchronized global market Bubbles are the ultimate “Too Big to Fail.” Moral Hazard has reached its pinnacle. And, after unleashing several Trillion at home and Trillions more overseas, central bankers will find it impossible to ween highly speculative and inflated markets off aggressive monetary stimulus.
There were 43,644 new U.S. COVID cases on June 30th, almost doubling the 22,562 reported the last day of Q1. Daily cases are averaging more than 54,000 during the first three days of July. There were a then record 71,000 new cases globally in the midst of a pandemic surge on the final day of Q1. Daily new cases now run above 200,000.
How can markets remain ebullient? Because a worsening pandemic ensures additional fiscal and monetary stimulus. This is not about economic fundamentals or markets pricing a solid “V” recovery. It’s greed and FOMO (fear of missing out) – Monetary Disorder and a resulting runaway speculative Bubble. This game has been playing out for a while now. It’s an increasingly dangerous game – one that seems to be building toward some type of conclusion.
It’s worth noting the safe havens were not in the least spooked by Q2’s “risk on.” Ten-year Treasury yields actually declined a basis point to 0.66%. Bund yields rose less than two bps to negative 0.46%, while Japanese yields rose less than one basis point to 0.02%. As the ultimate safe haven, gold surged $204, or 13%, to $1,781 – the high since the 2012 European debt crisis. In a year for the history books, two extraordinary quarters down and two to go.'
- Doug Noland,
Two Down, Two to Go, July 4, 2020
Context(Banking Reform) - '..my basic definition: A Bubble is a self-reinforcing but inevitably unsustainable inflation.'