Alan Greenspan

It is only logical that when one of the smarter people in finance warns that he "sees bubbles everywhere" that he should be roundly ignored by those who have no choice but to dance. Because Bernanke and company are still playing the music with the volume on Max, and if not for POMO there is always FOMO. However, if there is any doubt why this "rally is the most hated ever", here are some insights from the Bond King from an interview with Bloomberg TV earlier today: "We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions. It doesn't mean something like 2008 but the potential end of the bull markets everywhere. Not just in the bond market but in the stock market as well and a developing one in the house market as well."

The political class set in motion the eventual obliteration of our economic system with the creation of the Federal Reserve in 1913. Placing the fate of the American people in the hands of a powerful cabal of unaccountable greedy wealthy elitist bankers was destined to lead to poverty for the many, riches for the connected crony capitalists, debasement of the currency, endless war, and ultimately the decline and fall of an empire. The 100 year downward spiral began gradually but has picked up steam in the last sixteen years, as the exponential growth model, built upon ever increasing levels of debt and an ever increasing supply of cheap oil, has proven to be unsustainable and unstable. Those in power are frantically using every tool at their disposal to convince Boobus Americanus they have everything under control and the system is operating normally. Nothing could be further from the truth.

The Fed's Jackson Hole, Wyoming symposium is one of the most sacred of annual Fed meetings: it is here that the Fed has historically hinted at any and all upcoming episodes of major monetary experimentation. As such, presence by the high priests of global monetarism is not only compulsory, it is a circular stamp of approval of the Fed's ongoing status quo-preservation capabilities. Which is why the fact that the man at the top himself, Ben Bernanke, whose term is due to expire just five months after this year's Jackson Hole gathering, will be absent "due to a scheduling conflict", is set to spark a fire of questions, first and foremost of which: is this the sign Bernanke is handing over the suitcase with the printer launch codes to some yet unspecified, second in command? Or, even worse for those addicted to monetary heroin, will Bernanke simply try to put as much distance as possible between himself and the place where (and when) the Fed announces the grand "open-ended" QE experiment is set to begin tapering?

In 1996 it was Alan Greenspan with his "irrational exuberance" call, is Janet Yellen sending the same message, as she warns...

• *YELLEN SEES SIGNS `SOME PARTIES ARE REACHING FOR YIELD'
• *YELLEN SAYS LOW INTEREST RATES MAY PROMPT `TOO MUCH LEVERAGE'

Did the Fed's most dovish member, and likely next chairperson just suggest that, while 'lower for longer' rates will continue, that stocks and high-yield credit look a little more than frothy.

Asset price correlations across a wide spectrum of industries and asset classes are meaningfully lower than the last few months. ConvergEx's Nick Colas note that this is something completely unexpected: we’ve approached a “Normal” capital market over the last 30 days. S&P 500 sector correlations are below 80% relative to the index, foreign stocks are 77-87% correlated to U.S. stocks, and even domestic high yield corporate bonds are 56% dancing to their own tune. However, before we run off celebrating the return to a stock-picker’s market, it is worth noting one statistical point worth your time: when industry sector correlations have dropped below 80% from 2010 to the present, the subsequent one month, one quarter and one year returns have been below average, especially the shorter time frames.

Was the Real Purpose of the Iraq War to Restrict Oil ... So As to Raise Oil Prices?

No, it wasn't Ben Bernanke or Alan Greenspan, it wasn't Jean-Claude Trichet or his successor Mario Draghi, nor was it Mervyn King, Carney, Shirakawa, or Hildebrand. The answer, as shocking as it may sound, was...

Reclaiming the Founding Fathers' Vision of Prosperity

Barclays index of high yield bond total returns is now 63% higher that its pre-crisis peak. This compares to an equivalent total return index for the S&P 500 was only 12% (and it has yet to break the October 2007 highs). These numbers are astronomical in the face of micro- and macro-fundamentals and while equity markets remain the policy tool du jour for the central planning elite, it appears they are perhaps starting to become a little concerned that driving all the retiring boomers 'safe' money into risky bets may not end so well. Just as Alan Greenspan stepped on the throat of equity markets with his now infamous 'irrational exuberance' speech, we wonder, as Bloomberg notes, if last night's speech to the Economic Club of New York by Bill Dudley is the new normal equivalent, as he noted, "some areas of fixed income - notably high-yield and leveraged loans - do seem somewhat frothy," just as we warned here. With the high-yield index trading at 5.56% yield - the lowest in over 25 years and loans bid at 98.27 (the highest since July 2007), perhaps he is right to note, "we will need to keep a close eye on financial asset prices."

There once was a time when it was fair to say that Alan Greenspan was the biggest living contrary indicator of all time. Long before he became known to a wider audience, in early January of 1973, he famously pronounced (paraphrasing) that 'there is no reason to be anything but bullish now'. The stock market topped out two days later and subsequently suffered what was then its biggest collapse since the 1929-1932 bear market. That was a first hint that stock market traders should pay heed to the mutterings of the later Fed chairman when they concerned market forecasts: whatever he says, make sure you do the exact opposite. The reason why we feel he must be relegated to third place is that since then, arguably two even bigger living contrary indicators have entered the scene: Ben 'the sub-prime crisis is well contained' Bernanke, and Olli 'the euro crisis is over' Rehn. Admittedly it is not yet certain who will be judged the most reliable of them by history, but in any case, when Greenspan speaks, we should definitely still pay heed...

Despite the all-knowing Alan Greenspan confirming there is no irrational exuberance currently, Oaktree Capital's Howard Marks is less convinced. Though he is not bearish, he lays out rather succinctly the current pros and cons for equities - based on the various 'valuation' arguments, discusses the folly of the equity risk premia, and highlights the dangers of extrapolation and what history can teach us... "appreciation at a rate in excess of the cash flow growth accelerates into the present some appreciation that otherwise might have happened in the future... it isn't just a windfall but also a warning sign."

Paul Krugman just did something mind-bending. In a recent column, he cited Minsky ostensibly to defend Alan Greenspan’s loose monetary policies. Krugman correctly identifies the mechanism here — prior to 2008, people forgot about risk.  Macroeconomic stability bred complacency. And the longer the perceived good times last, the more fragile the economy becomes, as more and more risky behaviour becomes the norm. Stability is destabilising. The Great Moderation was intimately connected to markets becoming forgetful of risk. And bubbles formed. In endorsing Minsky’s view, Krugman is coming closer to the truth. But he is still one crucial step away. If stability is destabilising, we must embrace the business cycle. Smaller cyclical booms, and smaller cyclical busts. Not boom, boom, boom and then a grand mal seizure.

The dark ages were an awful time. Considering the brightest days delivered constant warfare, the burning of books, and the fear of barbarians, no one ever looked forward to the darkest days. Fast forward 1,600 years, and the darkest days of the European debt crisis are finally over - not because the bad debt has been written off or due to the consolidation of all debt, but simply because everyone has said so. Exactly who is telling lies and who is telling the truth will only be determined in due course. Without a doubt, global economic growth remains stagnate, yet stock markets are booming. Our message on financial markets remains very consistent – do not confuse strong financial markets with a strong underlying economy. While this may sound like hogwash to many investors and investment professionals, it is the extreme, unorthodox, and never-before-tried policies by the World’s central banks that is the reason for the march higher for stocks. Regardless, for those who honestly believe in the recovery, ask yourself the following questions...

Oh well, who cares about things in the past?

The underlying question in Bill Gross' latest monthly letter, built around Jeremy Stein's (in)famous speech earlier this month, is the following: "How do we know when irrational exuberance has unduly escalated asset values?" He then proceeds to provide a very politically correct answer, which is to be expected for the manager of the world's largest bond fund. Our answer is simpler: We know there is an irrational exuberance asset bubble, because the Fed is still in existence. Far simpler.