Normally, prices are self-limiting, notes Citi's Matt King: yields rise - inflows hit - prices rise - yields drop - outflows hit - price drops, and back to yields rising. But, it appears for now that we are in a positive feedback (or hyperbolic) loop, where - thanks to central banks pushing too much money to chase too few assets - prices rising implores inflows creates "higher returns" which in turn encourages more inflows (as risk is ignored). King's analogy for this precaiorus situation is pulling a brick with a piece of elastic - nothing happens for a long time... and then - all of a sudden - woosh. Ring any bells?
Normally, price movements are self-limiting (a negative feedback loop)...
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But as Matt King explains...
Bubbles, however, behave differently...
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The question is - obviously - which process are we following in which asset class?
Interconnections make for stickiness - but also fragility...
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But everyone is looking at inflows...
Market movements have become much more correlated with positions...
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So what happens when the flows taper? Or when markets start to turn down (stocks) or up (Treasuries)?
And that disilusionment is starting one asset at a time...
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