QUESTION: Hi Marty, Happy 4th July to you & your team. My question is: Have the Central Banks now created an asymmetric trade (free bet!) with respect to the stock market? It appears they cannot let any market fall. Sincerely,
ANSWER: I understand many people always look for some party to blame for a move. But what is going on is far more serious. There is a rising tide of major capital that is beginning to understand that we are on the brink of a serious collapse in confidence. I have been warning that the stock markets are the alternative to government, and we are facing a bubble in government bonds beyond anything recorded in history to date. There is no place to run other than private assets. Sure, you will get the goldbugs preaching all will come crashing down except gold. There is just no such period in history where that scenario has EVER unfolded.
The shift from public to private is unfolding. The bubble in bonds is in part created by regulation where pension funds MUST be invested in government paper for the government claims they are AAA and safe. But historically, governments always go broke as their debt is unsecured. Whereas with corporate debt, you get liquidation and some return on assets when sold. With government, you get nothing. Decreeing pensions must have some portion of government paper, even if they lose money on the transaction, has led to a huge bond bubble. We have many pension funds attending our WECs because of this very crisis.
It is not the central banks supporting the stock markets. They lack power. The central banks are trapped thanks to Draghi’s more than 10 years of quantitative easing and there is no way to fix the problem now without monetary reform on a grand scale.