I am the one who knocks

mania

Are We In A Veritable “Mania”?

in central banks/Equities by

We’ve said this about a thousand times now, but it’s worth repeating. It’s fashionable to be a bear these days. It’s as if sometime in January (probably when Kuroda launched NIRP and subsequently strengthened the JPY) everyone stopped believing.

And that’s fine. We’ve been sounding the alarm bells for years. But once a theme becomes fashionable (just look at CNBC’s Brian Sullivan and Rick Santelli) you have to exercise an appropriate degree of skepticism. That’s not to say we believe this rally is sustainable in equities or fixed income. But then again, who knows? We’ve never been in an era where central banks print trillions to buy everything from corporate bonds to Japanese ETFs. The’ve suppressed vol and driven bubbles in virtually everything, from stocks to Picassos. Literally.

Fighting this has been a losing battle. For going on a decade. And the reason isn’t because the policies aren’t absurd. The reason is because Main Street doesn’t understand what all of this means. They look at fiat money as money. You have it, you spend it. It’s like the old restaurant 15 minute break adage on cigarettes: “if you got em’, smoke em’.”

So that’s why we’re skeptical of charts like this:

mania

(Chart: Deutsche Bank)

See that little black arrow on the far right? That indicates that between multiples and vol we’re in “mania” mode. Frankly, that’s ridiculous. Are we overvalued? Well of course (18X). But is this the dot-com bubble? No. Is this 2008? No.

But it will be. You just have to give it time. Patience is a valuable attribute in markets. Just ask Michael Burry.

Draghi and Yellen and Kuroda aren’t going to let this crash tomorrow. But you’re on borrowed time. And the question becomes this: what happens when Bernanke’s experiment finally ends? The answer to that question depends on the extent to which Main Street realizes what happened. If they can’t figure out the implications of trillions in paper liabilities being printed to buy other paper liabilities issued by the same government (i.e. a Ponzi scheme), then we’ll be fine. If they wake up, we’re – well, we can’t use the word we want to use here, but you get it.

1 Comment

Leave a Reply

Your email address will not be published.

*

Latest from central banks

yellen

Fed Minutes Summary

Via Bloomberg: Several members judged that it would be appropriate to increase
cb

Why Is QE Failing?

You might have noticed something rather disturbing unfolding over the past half
Go to Top