The Central Bank Bubble

Posted | 02/02/2015 / Views | 3077
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We want to introduce the credentials of this quote before you read it.  Dr Hussman holds a Ph.D. in economics from Stanford University. Prior to managing the Hussman Funds, Dr. Hussman was a professor of economics and international finance at the University of Michigan.  We speak often about how the current economic experiment, borne of desperate protracted central banks stimulus, is unprecedented and mathematically impossible to sustain.  Here’s what Dr Hussman had to say just last week:

“It’s not entirely clear what will happen in the near term, but the financial markets are already pushed to extremes by central-bank induced speculation. With speculators massively short the now-steeply-depressed euro and yen, with equity margin debt still near record levels in a market valued at more than double its pre-bubble norms on historically reliable measures, and with several major European banks running at gross leverage ratios comparable to those of Bear Stearns and Lehman before the 2008 crisis, we're seeing an abundance of what we call "leveraged mismatches" - a preponderance of one-way bets, using borrowed money, that permeates the entire financial system. With market internals and credit spreads behaving badly, while Treasury yields, oil and industrial commodity prices slide in a manner consistent with abrupt weakening in global economic activity, we can hardly bear to watch.”

The rise in gold and silver and plummeting bond yields this year appears fuelled by more people coming to the same conclusion.  The Swiss National Bank de-pegging the Franc was just the first scare, over the weekend Belgium lowered their rates for the 3rd time in a week to MINUS 0.5% in a desperate attempt to avoid having to do the same thing with their currency.  It appears only a matter of time before the next shock to the system and one can only wonder which will be the final.