Do you remember 2008? …and what led up to it? Do you especially remember all of the assurances made that “everything would be OK?” It smells again like 2008 but this time much MUCH worse. Consumer debt levels have barely subsided from those back in 2008. Taxes are higher and now biting which is a definite factor suppressing retail sales. Gasoline prices are higher and unless you own oil stocks this is surely no benefit. Derivatives outstanding are higher than they were yet banks say they are less leveraged (how can this be?).
But wait, it gets much better. Now, central banks have at a minimum doubled balance sheets and sovereign treasuries have hopelessly indebted themselves. Do you remember back then? The central banks and treasuries were supposed to be the White Knights who would ride into town and save the day. How did that work out? …and who is going to be the “White Knight” this time around? We also have an investing public that has finally shaken off the “sting” from 2008 who is re-entering the arena and “leverage” is back to where it was previous to those “happy days.”
Believe it or not, bullish sentiment (for stocks, not consumers) is again robust and the “plunge protection team” has wrung all of the volatility out of the VIX index. Not to mention the “lock down” in precious metals over the last 3 or 4 months, investors are being steered away from these safe havens. I don’t know about you but the current set up looks like a disaster in the making to me.
One other observation: interest rates are beginning to rise! Uh Oh. I know, they aren’t supposed to go up; in theory they cannot go up as the Fed buys Treasuries to keep yields down but… the 10 year Treasury is now above the whopping 2% level! My point is that everything paper (almost everything) is priced for a perfect world however “imperfect” it really is. Add to the similarity mix that Europe is now “officially” in recession as no country showed growth at the end of 2012 and the “Uh Oh” moment approaches.
Read More at Miles Franklin . By Bill Holter.