Central Banks

Greenspan “Extremely Concerned” About Bond Bubble

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“Well, I think the best way of looking at this is to recognize that the price earnings ratio is really statistically made up of two forces,” Greenspan said. “One is the equity premium which, actually, is a little out of line now, but not been materially so. Plus, the level of riskless interest rates. It’s there that the basic problem arises, because, for whatever reason, whether it’s the Fed moving or the market moving itself, bond prices fall, you begin to get very significant downward pressure on stock prices. And there’s where the real problem lies as far as equities are concerned, is that it cannot be dissociated from the fact that interest rates are historically too low and will have to move higher eventually.”

Alan Greenspan recently took to the airwaves today continuing to issue more ominous warnings about the status of the current Federal Reserve fueled Stock & Bond Bubbles.  He expressed dire warnings that interest rates are set to move higher, whether by the Fed directly or by market forces.

“Remember what a bubble is in a bond market,” Greenspan said. “We tend to think of stock market bubbles as very substantial price earnings ratios. Well, if you turn the bond market around and you look at the price of bonds relative to the interest received by those bonds, that looks very much like the usual spread which would concern us if it were equities, and we should be concerned.” 

Thanks for the heads up Alan.  Although, we are reminded of the quote “You cannot taper a Ponzi Scheme”  Any interest rate rise will serve just like a “tax”, a “margin call” or a “taper” to the markets. Whatever your preferred terminology is.

Any Econ 101 student can tell you that the only choice the Fed has at this point is to initiate QE4. The rest is all lip service.

Well…unless there is a plan in the works to replace the US dollar as the World’s reserve currency and replace it with the IMF’s SDR….