Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Central Bank Rescue Efforts Creating An Every Asset Bubble?

By Gary GordonMarket OverviewJul 29, 2021 12:44AM ET
www.investing.com/analysis/central-bank-rescue-efforts-creating-an-every-asset-bubble-200594403
Central Bank Rescue Efforts Creating An Every Asset Bubble?
By Gary Gordon   |  Jul 29, 2021 12:44AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The central bank of the United States, the Federal Reserve, exists as an economic savior and as a financial persecutor. As a rescuer, it successfully bailed out the economy during the coronavirus shutdowns by creating trillions in digital dollar liquidity.

(See the green box in the chart below.)

Stocks recovered quickly from the March 2020 crash. Home prices maintained values; they even began climbing alongside lower interest rates.

Total Assets Chart
Total Assets Chart

Then something sinister happened. In their infinite wisdom, members of the Federal Reserve Open Market Committee (FOMC) decided to continue money-printing activity indefinitely.

(See the orange box above.)

Now stocks and residences continue to hit all-time records with virtually no connection to underlying fundamentals. The Fed simply crams $120 billion each and every month into an economy that does not need it, and the money looks for returns in every asset under the sun.

Stocks, bonds, real estate, collectibles—you name it. The Fed has created a monster with its Every Asset Bubble.

Consider how desperate investors are becoming. Never-before-seen inflows into stock ETFs are a sign that investors believe they’re in a can’t-lose proposition.

Stock ETF Demand Chart
Stock ETF Demand Chart

Meanwhile, bond investors have become utterly desperate for yield. So much so that they are willing to risk losing all of their principal for the privilege of owning corporate bonds with ratings a single notch above default. Would you do that for a 7% yield?

CCC Rated Yield Chart
CCC Rated Yield Chart

And in nearly every metro area, you get home price charts that look a little something like this:

Case Shiller Home Price Index
Case Shiller Home Price Index

Indeed, the Fed has forged a monstrous environment. For one thing, investors are being misled by a notion that money creation and rate manipulation can always succeed at propping up financial assets. However, if an overwhelming number of participants prefer a 0% return for a period, rather than lose their shirts, trillions more in money-creating liquidity may fail when the bubble bursts.

For another, the Fed has painted itself into a corner. Waiting to pull back from gobs of stimulus may require a brake-slamming occurrence that investors will struggle to manage. Even modest efforts to pull back from gobs of stimulus today could send participants barreling for the exits.

And so what will the Fed do? Almost certainly, it will ignore inflation. Call it transitory. And continue printing each and every time that the owners of assets get scared.

The Fed does not care about the widening gap between those with assets and those without them. They’d rather pay lip service to wealth inequality. And while committee members may be mindful of the frothy particulars, they’re not willing to alter their course.

In the meantime, things get bubblier by the minute. The valuation premium for owning the largest companies (a la tech) versus owning smaller companies is eerily similar to the turn-of-the-century tech stock bubble.

S&P 500 Valuations
S&P 500 Valuations

And then there’s a modified version of the Warren Buffett metric, market-cap-to-GDP. (In this instance, it is market-cap-to “gross value added.”) The extent of the overvaluation? Mind-blowing.

Non Financial Market Cap
Non Financial Market Cap

Central Bank Rescue Efforts Creating An Every Asset Bubble?
 

Related Articles

Michael Kramer
Are U.S. Stocks Grossly Overvalued? By Michael Kramer - Sep 17, 2021

This article was written exclusively for Investing.com.Stocks have had a fantastic run over the past 18 months. It seems that many investors owe much of the credit to low-interest...

JFD Team
U.S. And U.K. Retail Sales, EU CPI In Focus By JFD Team - Sep 17, 2021

Yesterday, the US released a few important economic data sets, which overall showed decent results. During the early hours of the European morning, the United Kingdom released its...

Central Bank Rescue Efforts Creating An Every Asset Bubble?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
David Keller
David Keller Jul 29, 2021 4:28AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great analysis, definitely agree that we're entering a massive market wide bubble.  The big question is: when's the pop, and thereafter, what's the play?
Chris Johnson
Chris Johnson Jul 29, 2021 3:18AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Spot on article... But most retail investors believe in FED
peter neal
peter neal Jul 29, 2021 2:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
98 percent don't no what's happening and the rest own Gold. Fed is trapped and big Reset / Crash is about the corner.
Kaveh Sun
Kaveh Sun Jul 29, 2021 1:36AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
We will b ok if big monies dont cash.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email