Flows into exchange-traded funds were going full blast throughout the year and finished on a particularly strong note. Consider this: 2017 ETF flows surpassed the prior year’s record flows by 66%. Even though U.S. 162 billion. There’s never been anything comparable to this Market Structure. The Nasdaq100 jumped 4.0% in 2018’s initial four classes. The Nasdaq Computer Index surged 4.2%. The Semiconductors jumped 5.8%. The Nasdaq Industrials gained 3.1%, the NYSE Healthcare Index 3.2%, the Philadelphia STOCK MARKET Oil Services Sector Index 5.1%, and the S&P500 Index 2.6%. The mania is global.
Bubbles are self-reinforcing but undoubtedly unsustainable inflations. Asset Bubbles is fueled by some fundamental source of unsound financial inflation. Major speculative Bubbles and manias are propelled by key misperceptions and ensuing monetary disorder always. Bubble flows intensified in 2017, as misperceptions became only more deeply embedded in the Structure of Securities Market Pricing. Loose fund indefinitely is ensured. The U.S. (Bubble) overall economy is energized.
Strong revenue will be further inflated by lower corporate and business tax rates. Meanwhile, there’s a stimulus-fueled synchronized global economic boom. European growth is the strongest in years. China has arranged another 6.5% GDP development focus on. Throughout Asia and with scores of other EM economies, things are booming. Whether on U.S. “fundamentals” are exceptionally constructive. Lost in every the euphoria is the critical problem of fund: global financing is alarmingly unsound.
The 10-yr wedding anniversary of the 2008 problems arrives this year. Amazingly, a decade has handed down global central banks continue with quantitative easing and ultra-low rates yet. At the onset, central bankers believed they could employ QE to goose inflation and risk-taking. Then, with inflation dynamics having regained normal traction, central banks would simply wind down “money-printing” operations.
Everything would negotiate nicely back to normal. Nonetheless it was all flawed. Inflationist doctrine failed. And as archaic as it sounds, today trapped in the Scourge of Unsound “Money the world is.” Central banks inflated a global securities market Bubble and have been incapable of extricating themselves from market domination. Every year sees the Bubble inflate to only more precarious extremes.
1.0 Trillion of global QE. 36bn). The Fed has plans to reduce balance sheet holdings, while the BOJ has lately scaled back buys. Markets have been conditioned to trust QE reduction doesn’t matter. This complacency shall be examined in 2018. Last year’s concern for waning central bank liquidity procedures has been supplanted by this year’s heady confidence that it’s not an issue.
From my analytical perspective, the global market increase has been financed by two incredible (interrelated) resources. First, Trillions of QE have financed inflated and over-liquefied global markets straight. Second, I really believe leveraged speculation has played a significant role in exacerbating liquidity excess. Importantly, QE-related liquidity coupled with the perception that open-ended QE is available to backstop markets has fostered a host conducive to speculative leveraging. In a nutshell, the leveraging of central bank or investment company balance linens has incentivized the aggressive growth of speculative securities and derivatives leverage internationally.
And the bigger the Bubble inflates the less prepared central banks will be to tighten financial conditions. This only further incentives risk-taking and leveraging throughout global markets which have over years become gradually too comfortable pushing the chance envelope. Central bankers confront a historical problem. They perpetuated a prolonged major Bubble inflation.
- There is no maturity time for collateral securities so they are considered long-term securities
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- Fischer, Marcel, Bonds Desirable in Tax-Deferred Accounts? (February 7, 2008). Available at SSRN
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Despite a strengthening global economy and conspicuously speculative marketplaces, central banks in 2017 didn’t progress with “normalization.” Financial conditions further loosened when they had a need to have tightened. At this true point, when it comes to monetary tightening up central bankers lack trustworthiness. The view that central bankers will avoid any real tightening up of financial conditions is becoming deeply inserted in an extremely distorted market. The overall backdrop is increasingly supportive of U.S. CPI moving above the 2% threshold in 2018. Labor markets are restricted, and the growth in manufacturing employment has attained good momentum. With a growing number of sectors overheated, companies will be forced to pay up for skill.
And with sales strong and inventories slim, expect further acceleration in casing structure and prices. 61, with the weaker money generally stoking commodities prices. It’s no coincidence that securities markets have succumbed to speculative Bubble Dynamics when confronted with economic, financial, social, political, and geopolitical unrest. For many decades now, unstable finance has fostered serial boom and bust dynamics.