Royal Bank of Scotland to investors: 'Sell everything'

I have no idea how much of a bubble gets blown, but when this thread started, central banks around the world were trying to extricate themselves of the asset buying, which is why some people jumped the gun and thought it was going to be the beginning of the end of 7 years of recklessness (at that time) beyond even the recklessness that had created the housing crisis. The central banks were still all talk, but after 7+ years of expanding their balance sheets by about $20 trillion (that is straight monetary inflation -- and they have increased those balance sheets by another $4 trillion+ since), they wanted a way out. The Chinese debt situation started to unravel as the dollar rose relative to the yuan (the PBOJ intervened and has held off the inevitable). And our markets started to buckle in anticipation. BTW, all of those massive debt problems are still there. And due to monetary conditions having been made even looser since then, they are even bigger.

With the sell off we got in early 2016, all of those central banks panicked and went all in, not only propping the bubbles back up, but fueling a speculative bubble beyond anything we have seen in history now. They printed more than $2 trillion each of the last two years to buy bonds and in some cases (Swiss National Bank, Japanese Central Bank) simply buying equities to drive prices artificially higher.

I am wondering now if we are starting to see capitulation. There are no bears left, as in the link I am posting below. Fundamentals didn't justify the S&P 500 at 1900, let alone 2550. Valuations are now in batshit crazy territory (the Cape Shiller ratio has been at 1929 and 2000 levels for 2 years and the valuations are just getting more expensive now) and volatility has disappeared -- there is no worry. Not even Trump is scary enough to offset central banks printing money and throwing it into risk asset markets.

By the way, the stock market rise hasn't just been the U.S. Much of the world has outperformed U.S. markets this year. It is just up, up, up. The ECB is still buying $60 billion euros of dogshit Spanish, Italian, etc. bonds a month with money conjured out of thin air, and the carry trade that creates has gone into riskier and riskier invesments. ... People have been conditioned to think it is a no lose situation. Fundamentals don't matter. The economy, earnings, etc. -- what should drive the stock market -- are irrelevant. For example, stock prices here rose as earnings declined for 6 quarters in a row. We had a strong quarter last quarter, but we are just back to where earnings were in 2014. Yet, stocks are how much higher?

The VIX volatility index prices in zero risk. In fact, the VIX itself has become a trade. Despite it trading in single digits (which is abormal) and being at levels we have never seen, everyone is just short VIX -- nothing can go wrong, because central banks have your back. Bad economic news gets shrugged off. And any pullback the last 2 years, has just brought on Pavlovian buy-the-dip behavior, so we aren't even getting normal 3, 4 percent corrections anymore. The last several days, though, it has felt different. It has felt like capitulation.

This is what happens when you destroy price discovery as the ECB, Federal Reserve and BOJ did by creating massive balance sheets with money created out of thin air to stoke an insane amount of worldwide debt. We learned nothing from the early to mid 2000s. It's massive monetary inflation, and it is going to have disastrous consequences. Some people are going to get hurt on par with 1929 and 2000, unfortunately, and the fallout from the coming debt crisis that is at the heart of this is going to be economically difficult beyond anything most people have experienced -- this has real consequences.

In the mean time, till the markets being driven higher pop, sit back and watch a giant market bubble brought on by central bank stupidity. The actual economy (not the stock market economy they created) has grown below trend growth during the recovery -- 1.8 percent, 2 percent, etc. it hasn't been much of a recovery for all of that artificial manipulation. And we are now past the point that typically brings a recession. Even if you believe they can manage the economy, this time around they have no tools left to try to do it with. Overnight rates are already hundreds of basis points lower than they would be if a market were pricing debt. Monetary conditions right now are looser than they were 3 years ago. And, for example, in the case of the ECB and BOJ, they have run out of bonds to buy -- they are the only buyer really left. They destroyed those markets. Even if they wanted to unwind their balance sheets. ... they bought indiscriminately, without regard for value, and investors saw free money and front ran them. Now? There aren't going to be any buyers to take what they way overpaid for off their hands. They backed themselves into a corner, so the only question is how big can they blow the bubble before it pops. The bigger it gets, the worse the consequences for all of us -- this ends with a lot of develeveraging and the economy (not just a stock market) paying a price. It is what Puerto Rico is going through but on a much bigger scale. It sucks and it was all unnecessary.

re: the market bubbles. ... I read this today. It might be interesting to someone on here.

GOOD THING JESSE ISN'T AROUND TO SEE THIS

 

A Volatility Trap Is Inflating Market Bubbles

 

Someone not subject to that "economist" groupthink and the evangelical ideas devoid of reason that permeate their academic circles had a wee bit different take today.

For some reason, the videos won't embed.

Druckenmiller: Central banks are financial world's 'Darth Vader'

Billionaire investor Druckenmiller: Fed's 2-percent inflation target needs to go