As our viewers know, we have been sounding the alarm about the
deflationary process that is playing out in the world’s equity, bond and
currency markets for quite some time. Because of the activity by central banks in
major and more recently in developing countries we have described what is going
on as “The Central Bank Bubble”.
It is truly an irony that in their efforts to fight the
forces of a crushing deflationary environment, central
banks have been the direct cause of one of largest inflations of financial
assets in history. This asset inflation
even extends to collectibles such as art.
As we write, equities in several major markets around the world are
trading at or near all-time highs while growth in those economies remains
anemic. In others, such as Japan,
equities are trading near the highs of recent years with the same anemic growth. On the fixed income front, sovereign yields
in the US, Japan, and most countries in the Eurozone are trading at all-time
lows. In the latter case there is an
unprecedented negative yield curve out 3-6 years for the very best credits
(France and Germany). All of this, as
many currencies are falling rapidly relative to the dollar. To paraphrase the character Marcellus from
Hamlet; something is clearly rotten in the state of the currency markets!
We strongly believe that the Currency Wars, (described in
our Cycle of Deflation as “competitive devaluation”) have begun. [More]