Markets have become completely detached from economic reality – and it's going to get ugly

[marmar]

Bubblenomics is back. Markets have become completely detached from economic reality – and it's going to get ugly

By Philip Aldrick Economics
Last updated: May 21st, 2013


Stock markets are at dotcom highs – that goes for the FTSE 250 domestic index as much as the FTSE 100 global one. House prices are rising. Yields on “junk” bonds are at record lows. Dangerous “covenant-lite” lending is enjoying a renaissance, just four years after being declared extinct.

Markets are convinced interest rates will remain at 0.5pc until late 2016, even though the economy is forecast to be growing at annual rate of 2pc by the back end of next year.

And a single month’s surprise fall in inflation sends sterling tumbling by a cent against the dollar, on expectations that the central bank will load up the printing presses once again.

None of it makes any sense, but it is the current juncture. Short-term financial hedonism has replaced rational long-term decision making. Persistently low rates are now the markets’ status quo, and traders can only see evidence of more quantitative easing in the runes. ...........................(more)

The complete piece is at: http://blogs.telegraph.co.uk/finance/philipaldrick/100024624/bubblenomics-is-back-markets-have-become-completely-detached-from-economic-reality-and-its-going-to-get-ugly/

[Warpy]

1. It's all being set up for a derivatives crash

and all it will take is one or two of the most egregious traders realizing how much hot air and wishful thinking has been supporting it and for how long and panicking. It will make the crash of 29 look like an anemic warm up.

It will take everything with it and Washington will be scrambling.

I just hope I'm dead by the time it happens. I know how to be poor. I just don't want to do it again, thanks.

[Laelth]

2. k&r for exposure. n/t

-Laelth

[Progressive dog]

3. Sympathies to UK, hope it's not as bad as you think nt

[marmar]

4. I don't think it applies to just the UK.

[Progressive dog]

5. Maybe not but inflation in article is UK and

deterioration of Pound vs dollar is also mentioned. Index used is the UK FTSE.The interest rates would apply to both, but after 4 years of predictions of inflation and interest rate increases yet another is expected. Anyway, it's tougher to extrapolate from UK to US than vice versa due to size of economies.

[jakeXT]

6. I thought it was a Martenson article

As the global equity and bond markets grind ever higher, abundant signs exist that we are once again living through an asset bubble – or rather a whole series of bubbles in a variety of markets. This makes this period quite interesting, but also quite dangerous.

With equity and bond markets at or near all-time record highs, with all financial assets consistently shrugging off bad – or worse – news as the riskiest of assets continue to find consistent upward bids, we find ourselves in familiar and bubbly territory.

I can summarize my thoughts in one sentence:  How could this be happening again so soon?

In times past, it took one or more generations between bubbles for people to financially recover and forget the painful lessons before they would consider doing it all again. Yet here we are, working our way through our third set of bubbles in less than two decades, which must be some sort of world record.

http://www.peakprosperity.com/blog/81951/four-signs-were-back-dangerous-bubble-territory

[bemildred]

7. Markets have been detached from reality for quite some time now, 40 years at least.

And bubbles are pretty much what our financial guiding lights do, it's what they know how to do, bubbles.

So yeah, none of it makes any sense, and it won't end well, but it's the way it is now, for sure.