BofA: We Are Witnessing The Third Biggest Bubble Created by A Central Bank
The comments above & below is an edited and abridged synopsis of an article by Tyler Durden
In its scramble to reflate the biggest asset bubble in hopes of inflating away the $233 billion in global debt, which at 318% of world GDP has never been higher, the Fed took a wrong turn somewhere, and instead of successfully sending ‘inflation’ assets into the stratosphere, it successfully reflated deflationary assets.
Commenting on this divergence, Bank of America notes that while we are now in the 2nd-longest US equity bull market of all time, its leadership has been in assets that provide little growth and little yield. Specifically, the deflation assets, such as bonds, credit, and growth stocks (315%) have massively outperformed inflation assets, such as commodities, cash, banks, and value stocks (249%) since QE1. At the same time, US equities (269%) have massively outperformed non-US equities (106%) since QE1.
And, as happens every time the Fed tries to manage asset prices, it has created another bubble.
As Bank of America’s Michael Hartnett writes, “the lowest interest rates in 5,000 years have guaranteed a melt-up trade in risk assets,” which Hartnett has called the Icarus Trade since late 2015. He points out that the latest—the e-commerce bubble, consisting of Amazon, Netflix, Google, Twitter, eBay and Facebook—is up 617% since the financial crisis, making it the 3rd-largest bubble of the past 40 years. At this rate—assuming no major drop in the 6 constituent stocks—the e-commerce bubble is set to become the largest bubble of all time over the next few months.