Wednesday, May 2, 2012

The Bubble

Another brilliant post by Bill Gross. There is a credit bubble out there; when it tried to deflate and implode, the Fed had to step in and prevent it from imploding. Upon doing so, it breathed life back into the inflating bubble. Recently, the ECB and E-Zone created money through the LTRO and breathed life into the European peripheral banking system. The Fed is currently in the midst of Operation Twist wherein it buys longer term g-bonds.
Oddly, Bill also has a simple chart where he shows the stock market's movement juxtaposed against the periods where the different forms of QEs had been conducted, and at each time frame when the Qe had been ended, there was a sharp fall in the market.
He goes on to say something that was taught to me by Mr. Chidambaram when he was Finance Minister here... low rates usually mean inflation in the future.
However, this time we have the eurozone and China to deal with. Spain is now regularly in the news and somehow, nobody cares about Greece or the UK. Yes, the UK.
The current 'happy' sentiment in the market will leave us soon and come back another day. I hope the hiatus is not for too long...

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