BofA: Even The Bubbles Are Becoming More "Bubbly" Thanks To Central Banks

Tyler Durden's picture

Back in June, Citi's credit strategist Hans Lorenzen pointed out that while QE had failed to spark inflation across the broader economy, it had achieved something else: "the principal transmission channel to the real economy has been... lifting asset prices." That however has required continuous CB balance sheet growth, and with the Fed, ECB and BOJ all poised to "renormalize" over the next year, the global monetary impulse is set to turn negative in the coming year. Meanwhile, as financial markets scramble to maximize every last ounce of what central bank impulse remains, we get such bubbles as London real estate, bitcoin and vintage cars, or as Citi puts it: "the wealth effect is stretching farther and farther afield."


Three months later, the latest to tackle the issue of central bank bubble creation, is BofA's Barnaby Martin, who in a note released overnight asks rhetorically "are bubbles becoming more “bubbly”?

Just like Lorenzen, Martin observes the blanket central bank “lower for longer” rates intervention, which leads to "speculative behavior in assets." Well, technically, Martin hedges by calling it a "risk", but one look at the chart above and below shows that the bubbles created by central banks are all too real. And as Martin, whose topic is the unprecedented buying spree across credit, notes it’s not just credit markets that are seeing exceptional investor demand at this point in the cycle: so is everything else, or as he puts it:

"As chart 3, over the page shows, asset bubbles seem to be becoming more “bubbly” as time goes by."

What he means by this is that post the financial-crisis, "the largesse of central banks appears to be inducing quicker and steeper price gains in assets compared to the case historically."

Some examples:

For instance, the increase in Japanese equities was pronounced between mid-1982 and the end of 1989, with share prices rising around 440% over the period. But Bitcoin, for instance, has risen roughly 2000% since just mid-2015. And other, recent, in-vogue indices seem to be surging higher as well.

Not surprisingly, just like Lorzenen three months ago, Martin agrees that there is are two key events which would immediately put an end to these "bubbly" bubbles: an inflationary shock, or the ECB putting a hard stop to its bond monetizing largesse .

In our view, an end to the bullish credit cycle in Europe can only come about once the major inflows dry up. For us, this will require more than just the ECB tapering their bond purchases next year. Witness, for example, the strength of Sterling credit spreads over the last few months despite the BoE’s corporate bond buying programme “hard stopping” in April this year.

More than just central bank jawboning, however, Martin thinks "the end of the credit party will likely require a big inflationary “shock” in Europe, and one strong enough to reset market expectations over the pace of rate hikes. Safe to say that this seems a long way off to us."

As a result, helped by falling political uncertainty (note European policy uncertainty is now lower than US policy uncertainty – the first time since mid-2012) and the renewed rise in negative yielding assets (note record number of European countries now with negative yielding debt), we see credit spreads heading tighter into year-end.

And yes, this means after the latest correction, Bitcoin will keep going higher...

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spastic_colon's picture

whatever are one of the facilitators of the bubbles; the hyper-inflation is upon us.

UndergroundPost's picture

Ah, how lovely. The FIAT money addict Banksters are now acknowledging that their Central Bank Masters' currency injections can get "bubbly" and that centralized money printing, like an unlimited supply of crack, can be damaging to the health of the nation and world. Next they'll really surprise us and tell us unicorns don't exist.

svayambhu108's picture

Tylers Irma is already beast cat 5 it is in top 10 ever and is half the road

Paul Kersey's picture

BofA: Even The Bubbles Are Becoming More "Bubbly" Thanks To Central Banks (and Pump-n-Dump TBTF Banks like BofA).

bwh1214's picture

Bitcoin is an asset that is going up because of central bank actions but not the same actions that are causing bubbes in several other areas of the economy. 

Here's a video response to bitcoin bashing Chris Duane's challenge.

stitch-rock's picture

Bitcoin is ascending price because of Gresham's Law.
Its a fuckload better then the fiat paper 'debt money' IOUs from psychopathic central bankers...

yogibear's picture

What else happens when you can print hundreds of trillions from thin air to transfer welth to the top 1%?

UndergroundPost's picture

Bankster crack whores are covering their asses, knowing that the mother of all bubbly bubble bursts is one black swan event away.

mayhem_korner's picture

BoFa is putting one of their wideouts in motion to see if the masses are in man or zone coverage.  Then they adjust the play call at the line (trading algos) to gash the masses.

It's sickening beyond words how the beneficiaries of the '08 (and still going) bailout are opining on the credit tsunami that has kept their skyscrapers and leather chairs in tact.

yogibear's picture

They'll keep printing more at faster rates. Buying corporate bonds, stocks and mortgage debt. Eventually pouring $1 trillion per month with non- productive funds going to the top of 1% banksters.

AG17's picture

Pick what will burst first: CB created bubble or NK created Bomb.!?

But we are doomed anyways.

Five Star's picture

Printing money and buying financial assets will do that. These analysts try and make it sound complicated....

There is no wealth effect when stock gains come at the expense of fixed income yield,

jamesmmu's picture
Federal Reserve Finalizes Rules (Protect?) to Help Unwind Only “8” Big Banks?

equity_momo's picture

The only INFLATIONARY SHOCK possible is solely due to 1 of 2 things happening : 1)  the expedited debasement of currency OR the 2) refusal to purchase govn debt money.  

If there are not enough willing buyers of govn debt money and the private Central Banks for whatever reason (there are several) decide not to create AIR money to purchase said debt money themselves , then we have an inflationary shock.

Anyone without an Ivy League phd in eCONomics knows that 1 eventually leads to 2 anyway.

So what will cause a fast enough debasement or a large enough buyers strike ? Quite simply the global realization that the MIC of the US Corp is no longer able to outwardly project power to get its way and thus secure the petro $ system.   And that is happening RIGHT NOW.    

Grandad Grumps's picture

Yup ... but even that does not bother me so much.

Mayer Amschel Rothschild's most famous brag is true today moreso than ever: "Give me control of a country's money supply and I care not who makes the laws".

We are reaching the peak of corrupt banking power.

They wnat us to attack North Korea for no other reason than it is profitable for them (they do not control the money supply in North Korea... as 20 years ago they did not control the money supply in Iraq, Afghanistan, Libya, Sudan, Somalia, Syria and Iran).
They have created a criminal financial class that is above all laws and through legalized bribery create laws that suit them.
THey have used the fiat money that they created out of thin air to purchase (direct;y and through their proxies) controlling interest in all real property and all corporations.

All of the evil of today can be tied somehow to the banks. This is obvious. What is less obvious is that biblically speaking people are looking for an "anti-Christ" in human form to appear and then looking for a savior Christ to make a second appearance. I personally believe that this is a deception. An anti-Christ is something that is in opposition to the Christ consciousness and against the maturation/advancement of humanity. We have that here in this world already. And, Christ is a level of consciousness that everyone can tap into. THis conscousness changes us so that we cannot be anti-Christ... and it is inevitable.

The banks are evil. The people benefitting from the banks have accepted an evil master. It does not matter. What will happen is already written into the program of this world. Humans are beings of consciousness that interface into this world through a human body (cool, eh?). THey can chip us and collectivise us, but they have no power over the consciousness. It is written in the bible that the souls/consciousness of Satan's children will now not be allowed to reincarnate into a human body for 1000 years. Humanity will have time to develop without banking-type control over them.

The banks are currently too strong, but it does not matter. They are doomed.

mayhem_korner's picture

Anything that opposes Christ, or causes His followers to turn away from Him is an "anti-Christ."  There are many anti-Christs in the world and have been for a very long time.  The specific anti-Christ mentioned by Daniel and referenced in Matthew 24 and 2 Thessalonians - the one of the "abomination that causes desolation" - is the subject of debate.

Not quiet clear on your notion that "Christ is a level of consciousness."  Among the false religions, Scientology is founded on something akin to "levels of consciousness," deceiving people into believing that they can work out their holiness on their own. 

The world is full of all kinds of evil - not just banks.  Christians live in this world knowing we cannot eradicate that evil by our own hand.  Christ did that for us, but we remain in a world that is broken - including our own brokenness - until He reconciles things on the last day.

surf@jm's picture

Well, I would have to say that that particular abomination must be socialism.....

It has caused more desolation than any other thing I know of......

equity_momo's picture

Watch what Putin does with the CBR.   When he has cemented enough power (he still has a Fifth column problem in Russia even after a decade and a half) he will nationalize or at the least , remove , the CBR from the BIS and the Rothschilds controlled  Banking cartel.

That will spark copy-cats (possibly the other BRICs) but at that point the US led CB cartel will be too weak to do much. They might still start WW3.   Thats really what sparked hostilities in WW2 with the 1937 Nationalization of the Reichsbank and in 1939 it being placed under direct control of Hitler)

ThanksIwillHaveAnother's picture

A planted story to keep BTFD going.   Who is going to buy US debt if FED shrinks balance sheet?  Rates are going higher!

itstippy's picture

Assets valuations must continue rising to support existing debt levels.

Debt levels must continue rising to support asset valuations.

There is no way out of the loop.  

Either the Central Banks and First-World Governments keep issuing more debt, putting it on their books and pretending it will be paid back some day, or the debt-is-money financial system implodes in a deflationary collapse.  If they continue issuing more debt, eventually the debt-is-money system explodes in an inflationary nightmare.

Ben Bernanke called this arrangement "The Great Moderation".     

yogibear's picture

Exactly. The Federal eventually doing in essence $1 trillion/ month of QE.

Blankfuck's picture





Exponere Mendaces's picture

Bitcoin is fueled by the non-stop issuance of debt by the central bankers. Degrading fiat currencies are being converted into Bitcoin to preserve value. The only true "bubble" here is the Trillions in debt sloshing around each country.

Don't blame Bitcoin, its just one of the few economic shunts that is saving the common man's savings. The rest will learn when the fiat system shakes itself apart.


Let it Go's picture

While growing debt and expanding credit have moved demand forward we should not delude ourselves into thinking it will be repaid. The article below delves into how much of this debt will slip into default exacerbating future problems.