This Mess Orchestrated by Central Banks is Ripe with Opportunity

by Danielle Park
Juggling Dynamite

The financial distortions that central banks have orchestrated grow more grotesque by the day. Financial risk in the world has rarely, if ever, been higher. We are far past the last bubble peak in 2007 in terms of over-leverage, extreme asset valuations and complacency. And even those who have managed to block out the correction cycle of 2000-03, should still be able to recall what happened 2007-09 (if they try).

This chart courtesy of Bloomberg and captures the big picture view of the last three most epic financial bubbles that have driven household asset values (in blue) far above nominal GDP (red) only to re-couple once more and trigger recession (grey bars).

3 bubbles and countingHere is an update on the S&P 500 showing the Fed-forged reflex rally since February. Note that virtually all meaningful economic indicators have worsened since then, as prices have rebounded on yet another round of nonsense.

SPX Sept 20 2016

Irrational exuberance has now infected everything from bonds to stocks, real estate, commodities, art and every possible collectible. This means the mean reversion back to realign with economic demand and income levels is set up to be even more extreme this cycle, than the last two bear markets.

This table captures a good comparison of 2007 and today on some critical metrics.

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