Monday, May 18, 2015

Markets not in a bubble yet

As the economy recovers, as inflation goes higher, gradually long-term interest rates are going to go higher. In the short run, lack of market liquidity, lack of market makers can imply that when there are some surprises—economic and otherwise—or inflation, then you're in a very volatile environment for bond yields in the U.S. and Europe

Soon enough asset reflation can become asset inflation, asset inflation can become asset frothiness and eventually you have asset and credit bubbles."

My worry is the real economy justifies a slow exit—low inflation, still low growth, unemployment is still high—but then all this liquidity is going to go to asset inflation and eventually in frothiness and financial bubbles.

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