“When
you have all this liquidity chasing a fixed number of assets the asset
price inflation takes place.” That’s Komal Sri-Kumar rather neatly
summarizing the cynic’s take on the last 5 years of the stock market.
“It looks as if there is no end to the zero interest rates so the bubble
is going to get ever bigger.”
Seems
like a perfect system but for the glaring flaw Kumar says has been in
place since the inception of easy money on what he calls “Lehman Day,”
September 15th 2008. The Fed’s balance sheet has quintupled but the
equity markets and other benefits haven’t kept pace. Nature abhors
imbalances. Imagine your shins growing to twice the length of your
thighs or a tree with branches thicker than the trunk and you get the
basic idea of the financial abomination purists see when they look at
the Fed’s balance sheet gigantism.
Of
course the $4 Trillion question is how this ends when the Fed eases off
the gas in October. Kumar has a guess but it’s not going to make bulls
happy, particularly those who’ve started eyeballing the next Big Round
Number as a target for the Dow Jones Industrial Average.
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