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October 26, 2017

The Stimulus Party Is Ending

By EconMatters

We cover the Financial Markets reaction to both the ECB and BOC Central Bank rate decisions and monetary policy adjustments in this subscription video, contact us to get on our subscription video mailing list.

The Central Bank Era is coming to an end as the ECB begins the tapering process in earnest in 2018, and just like a juiced up bodybuilder or MMA fighter on the juice or the Steroid Era in baseball the Asset Bubbles in Financial Markets are going to start deflating and popping all over the place.

It is great that Central Banks created all these unsustainable asset bubbles all over the globe because make no mistake free, cheap Central Bank money is used internationally by all the large institutional players. They may even have created a wealth effect for those fortunate enough to benefit from Central Bank Extremism on the way up, but these same people and more will experience a Poverty Effect on the way down when the collateral damage takes down the larger global economy.

I love that Central Banks cannot seem to find any inflation when dogshit stocks like Intel are $41 a share, a stock that normally during a good run trade around $25 a share, or Microsoft that couldn`t get above $30 forever all the sudden is trading at $80 a share. These are not the only QE Inflated stocks with flat to declining revenue over the last three years which by the way is pretty hard to do when you factor in inflation effects. Just look at Caterpillar`s annual revenue the last two years versus its stock price.

The hilarity in all this is watching professional fund managers and money managers talking their book or giving their thoughtful analysis of the present state of financial markets and stock market valuations. As in the definition of a bubble isn`t whether it is unsustainable and overvalued by historically based valuation metrics, but whether it is going down tomorrow, next week or a month from now. When you get to this extreme levels of valuation, when it isn`t even a close call, where Central Banks around the globe all juiced up and bought Financial Assets for a decade, and now they are turning off the buying spigots, when the QE Monetary Experiment is over, and some financial market professional is still debating whether stock markets are a bubble right now you can come to a couple of conclusions.

First is that if they actually believe that stock markets aren`t in a bubble right now, then they are completely incompetent as financial professionals and should resign immediately. The second is that if they know that financial markets are a bubble and still taking speculative risk to the upside, then it proves that nothing was learned from the 2007 financial crisis. Thirdly, Central Banks are culpable for promoting this type of behavior in Financial Markets with their laissez-faire approach to financial markets and Monetary Policy in general without paying any heed to the unintended consequences of such abnormal Monetary Policy Measures.

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