This is such a key Bubble Dynamic. Over time, Bubbles become increasingly vulnerable. Indeed, systemic fragilities stealthily grow exponentially over time – especially during culminating “Terminal Phase Excess”. And the bigger and increasingly vulnerable a Bubble becomes, the more cautious central bankers will be with tightening measures. Worse yet, acute fragility ensures policymakers will act quickly and forcefully to thwart Bubble deflation – ensuring a quick resurgence of speculative impulses.
Monetary Policy Still Too Loose
The bottom line: Global financial conditions remain loose. This has been good news so far for risk assets; not so much for containing inflation.
Doug Noland: China Bubble Deflation Watch
Preparing for trouble, Beijing is now moving aggressively to control the information flow – about the economy, markets and finance – in the name of national security. It wreaks of growing desperation. Beijing tactics are not confidence inspiring.
Europe has no way of bailing out depositors. Instead, they passed laws making depositors bail out the banks.
Doug Noland: Animals or Lab?
Understandably, the stock market now sees bank instability as ensuring oodles of additional Fed and FHLB liquidity. First Republic’s stock sank 75% this week. Buy big tech stocks.
TSP Smart: Plan B is not Good
Beijing is now in full crisis management mode. They are expending tremendous resources to restart their boom – fighting a deflating bubble with all the might the communist party can muster.
With options expiration this coming Friday, the market has again worked its magic to ensure a lot of hedges expire worthless. I’m with the bond market for the possibility of an accident this year. I just believe the odds are higher.
U.S. Economy Slowing, Kuroda’s Peter Pan
The biggest lesson from Kuroda’s rein: No individual (or small group) should ever have such absolute power to inflate – in Tokyo, Washington, Frankfurt, Beijing or elsewhere.
The First Rule of Investing today is to Know You are in the Terminal Phase
Importantly, each bailout and reflation ensures only larger Bubbles – greater amounts of debt, financial system leverage, and speculative excess.
TSP Smart: The Big Pivot
While markets are these days fixated on an imminent Fed dovish pivot, out further on the horizon looms a crisis of confidence in government finance.