The Mother of all Bubbles or "searching for yield"

What can a capitalist do?  With her money that is?  Anyone, even a neighborhood capitalist, with just a few dollars saved faces the same problem the big capitalists face today – what can I do with my money to get a return?  A yield?

Ben Bernanke and his deluded predecessor, zee maestro, never talk about this very, very important outcome of their zero interest rate policies.   We never hear the little guy from the NYTimes talk about it – nor the recently departed (gotta get out before it’s too late) little Timmy.   Don’t hear the know it all oracle of Obama; ‘er, we mean Omaha, talk about it.

Here is what the highly regarded BIS annual report, just out a few days ago, said –

 “Financial markets have been acutely sensitive to monetary policy, both actual and anticipated. Throughout the year, accommodative monetary conditions kept volatility low and fostered a search for yield. High valuations on equities, narrow credit spreads, low volatility and abundant corporate bond issuance all signalled a strong appetite for risk on the part of investors. At times during the past year, emerging market economies proved vulnerable to shifting global conditions; those economies with stronger fundamentals fared better, but they were not completely insulated from bouts of market turbulence. By mid-2014, investors again exhibited strong risk-taking in their search for yield: most emerging market economies stabilised, global equity markets reached new highs and credit spreads continued to narrow. Overall, it is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally.

The acute sensitivity of financial markets to monetary policy was a hallmark of the period under review. Asset prices responded to shifts in the policy outlook of major advanced economies to an even greater extent than in previous years. Expectations regarding US monetary policy were central: the Federal Reserve's first steps towards normalising monetary policy ushered in a bond market sell-off in May-June 2013 that reverberated around the globe. Yet the bout of turbulence did little to undermine the longer-term trend of investors searching for yield in an environment of low volatility and low funding costs.

Highly accommodative monetary policies in the advanced economies played a key role in lifting the valuations of risk assets throughout 2013 and the first half of 2014. Low interest rates and subdued volatility encouraged market participants to take positions in the riskier part of the investment spectrum. Corporate and sovereign spreads in advanced economies drifted to post-crisis lows, even in countries mired in recession. Buoyant issuance of lower-rated debt met with strong demand, and equity markets reached new highs. Some asset valuations showed signs of decoupling from fundamentals, and volatility in many asset classes approached historical lows.”

Source:  http://www.bis.org/publ/arpdf/ar2014e2.htm

Hmmnn.  Where or where did all the Keynesians go?  Gone to find yield we guess.

This is not too difficult for even the economically challenged casual observer such as ourselves to grasp.  “SOME ASSET VALUATIONS SHOWED SIGNS OF DECOUPLING FROM FUNDAMENTALS….”

Shucks, even the BIS must figure that there still are a few basics out there.  Well, we sure do hope you and yours have found a safe harbor – to protect yourself.  You see these geniuses who brought us the housing bubble and the bad mortgage debt situation, which they still are using as the excuse for all their monetary promiscuity, are not capitalists.  They are bureaucrats and politicians and public employee union bosses and the one sure thing you can count on – they are protected in this crazy situation they created.

How can the Clintons get a $100 million net worth?  When a financial crisis is underway?    Well think about it – they play a large role in creating the crisis; convinced most of the population that they understand it; heck, they even convince most of the population that they can deal with it; fix it; and then write books about it and make speeches about it and the groups that are either worried or, more likely – the Wall streeter's who are doing quite well in the mess, pay them outrageous fees to talk about it even though they say nothing when they talk because they know nothing except this one thing –

Most of us are ignorant enough to buy into their nonsense.

Ben Bernanke deemed us so stupid that he paid us empty peanut shells for our savings – while the politicians and the bureaucrats earn double or triple us regular folk; earn huge pensions; the rest of us chase yield and try to find good investments and now they tell us – watch out, equity markets have reached new highs and asset valuations are “decoupling from fundamentals.”

This BIS article is telling us all one thing – if you are doing well in the stock market today it has little to do with fundamentals – and much to do with the shenanigans of politicians and bureaucrats and mostly, central bankers.  Do you think this adventure will end well?  Here is an article worth reading on this topic:  http://origin-www.businessweek.com/articles/2014-07-03/bond-run-is-wall-streets-worst-case-scenario#r=rss

One closing comment - the BIS has been in the central banker to the worlds central banks since 1930.  Their comments are direct criticisms of their member banks and they are not being well received in the central banking community or the panderers thereto.