Equity Wednesday : A Volcanado On Its Way ? Asset Bubbles ? Not Again ?

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I learnt a new word today. A Volcanado, which has yet to find its way into the dictionary, because it is a new concept of a tornado caused by a volcanic eruption.  http://www.slate.com/blogs/bad_astronomy.html

I also learnt that water does not put out all fires because when the fire is too hot, the water molecule splits into hydrogen and oxygen which fuels the burning.

The Bank of International Settlements came out with another bad ass quarterly screaming bubble as the reporters would have it. http://www.bis.org/publ/qtrpdf/r_qt1409.pdf

Central banks inflating ‘elevated’ asset prices: BIS
LONDON (Reuters) – Financial asset prices are at “elevated” levels and market volatility remains “exceptionally subdued” thanks to ultra-loose monetary policies being implemented by central banks around the world, the Bank for International Settlements said on Sunday.  http://reut.rs/1qzkS0D

I believe that this bubble mindset finally starting to take root when I read that Fed’s Fischer is leading a committee to watch for asset price bubbles.
     Sept. 13 (Bloomberg) — The Federal Reserve has created a committee led by Vice Chairman Stanley Fischer to monitor financial stability, reinforcing its efforts to avoid the emergence of asset-price bubbles. http://www.bloomberg.com/news/2014-09-12/fed-s-fischer-leads-committee-watching-for-asset-price-bubbles.html
Given that the BIS report is fresh off the press, we shall be reading all the bubble stories rehashed again. Yet if they are wise, they will wait for the FOMC this Thursday morning at 2am our time because it will be the game changer especially if we get more forward guidance on their rate hike time table after the taper concludes next month.
What is Bubbling ?
I am not sure.
Unless someone typed BUBBLE and got this on Bloomberg.
BUBBLE
Or this ? A housing bubble in Brazil and Peru ?
Or EM high yield bonds perhaps ? With BIS warning of risks “that the asset management industry could potentially be a source of vulnerabilities for EME asset markets“. http://www.bis.org/publ/qtrpdf/r_qt1409e.htm
MORNINGSTAR EM HY BOND INDEX

MORNINGSTAR EM HY BOND INDEX

 

But if you ask me what is potentially the biggest bubble of all ?

It is the asset class majority of investors are most bullish on at the moment – equities.

“Beneath the U.S. stock market’s record-setting gains, trouble is stirring.

About 47 percent of stocks in the Nasdaq Composite (CCMP) Index are down at least 20 percent from their peak in the last 12 months while more than 40 percent have fallen that much in the Russell 2000 Index and the Bloomberg IPO Index. That contrasts with the Standard & Poor’s 500 Index (SPX), which has closed at new highs 33 times in 2014 and where less than 6 percent of companies are in bear markets, data compiled by Bloomberg show.” http://www.bloomberg.com/news/2014-09-14/record-s-p-500-masks-47-of-nasdaq-mired-in-bear-market.html

I would not worry about it really. It is not as if we are unaware and need somebody to tell us where the prices are.

When the markets are transparent and investors are buying it up, then there can be no bubble.

It is like the Volcanado or a raging fire, consuming everything in its path. Throwing water in it may just make it worse.

Just be prepared to read a lot more about it soon.

 

 

 

 

Category : Equities, Market, Stocks
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