The
Mother of All Bubbles
A Problem Emerges: Central Banks Injected A Record $1 Trillion In 2017... It's Not Enough
Two weeks ago Bank of America caused a stir when it calculated that central banks (mostly the ECB & BoJ) have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, "the largest CB buying on record."
Which means that when stocks realize just how insufficient the record $1 trillion in central bank liquidity has become, central banks - which have stepped into every single market correction over the past 7 years with some "liquidity supernova" - will, for the first time since the financial crisis - be out of tools... something Janet Yellen appears to have realized some time ago.
Could this be the Straw that Breaks the Market’s Back?
Today, investors are stepping into the same traps that burned them in prior market cycles. Specifically, the margin-debt trap.As calculated by the New York Stock Exchange, margin debt is at an all-time high.All. Time. High.Today, credit balances are consistently 10-times higher from month to month than they were leading up to the Financial Crisis!TEN TIMES!We are in the mother of all bubbles.And under these circumstances, it only takes a small hiccup to empty the tea cup and wipe out investors’ accounts.Margin calls exacerbate the downside. Always have. Always will.
DYI:
My model portfolio continues to stand very defensive with 78% in short
term bonds (cash) and 22% in precious metals mining companies. Which direction will the physical metals
go? I don’t know – nor does anyone else –
they are priced at or slightly below fair value hence DYI’s 22% allocation. The mining companies have gone through a
brutal bear market from peak to trough of around 80%! All said the mining companies are the better
value than physical gold having their downside potential mitigated during any
market smash and possibly rise as investors seek defensive assets.
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