STOCK MARKET WATCH -- Monday, 8 December 2014

[DemReadingDU]

18. The Blow-Off Phase Of Bubble Markets

12/8/14 "We Are Down To The Final Myth That Animates The Blow-Off Phase Of Bubble Markets"
Submitted by John Rubino via Dollar Collapse blog... http://dollarcollapse.com/the-economy/world-in-a-box/

Of all the problems with fiat currency, the most basic is that it empowers the dark side of human nature. We’re potentially good but infinitely corruptible, and giving an unlimited monetary printing press to a government or group of banks is guaranteed to produce a dystopia of ever-greater debt and more centralized control, until the only remaining choice is between deflationary collapse or runaway inflation. The people in charge at that point are in a box with no painless exit. Prudent Bear’s Doug Noland describes the shape of today’s box in his latest Credit Bubble Bulletin:

Right here we can identify a key systemic weak link: Market pricing and bullish perceptions have diverged profoundly both from underlying risk (i.e. Credit, liquidity, market pricing, policymaking, etc.) and diminishing Real Economy prospects. And now, with a full-fledged securities market mania inflating the Financial Sphere, it has become impossible for central banks to narrow the gap between the financial Bubbles and (disinflationary) real economies. More stimulus measures only feed the Bubble and prolong parabolic (“Terminal Phase”) increases in systemic risk. In short, central bankers these days are trapped in policies that primarily inflate risk. The old reflation game no longer works.

In other words, most real economies (jobs, production of physical goods, government budgets) around the world are back in (or have never left) recession, for which the traditional response is monetary and fiscal stimulus — that is, lower interest rates and bigger government deficits. Meanwhile, the financial markets are roaring, which normally calls for tighter money and reduced deficits to keep the bubbles from becoming destabilizing. Both problems are emerging simultaneously and the traditional response to one will make the other much, much worse.
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We are, in short, down to the final myth that animates the blow-off phase of most bubbles: that of the omnipotent government/central bank which likes the status quo and has the power to maintain it. They don’t have that power, of course, or else financial bubbles would never burst and we’d still be living in the golden age of junk bonds, dot-coms and subprime mortgages.

What’s different about this iteration is that instead of being confined to a single asset class, the bubble is in financial assets generally, including fiat currencies, government debt, corporate bonds and equities, along with all their related derivatives. Where previous bubbles accounted for hundreds of billions or at most one or two trillion dollars, this one is denominated in hundreds of trillions spread from emerging market bonds to money center bank interest rate derivatives. The number of moving parts and the magnitude of the hidden risks guarantee that when it comes, the dissolution of today’s myth structure will be like nothing any of us have ever seen.

more...
http://www.zerohedge.com/news/2014-12-08/we-are-down-final-myth-animates-blow-phase-bubble-markets

and

12/5/14 Doug Noland: The Unavoidable Peril of Financial Sphere Bubbles
http://www.prudentbear.com/2014/12/the-unavoidable-peril-of-financial.html#.VITKVzHF8jV