from Wealth Cycles
The German Bundesbank is now concerned with acquiring their physical gold, while other central banks are busily investing the cash they create into stocks (see the Banks of Japan, Israel, and the indirectly Federal Reserve-funded plunge protection team). Meanwhile, risk appetite in markets has reached extreme levels, according to the Barclays chart below.
As we can see, the market is exhibiting historically extreme exuberance related to the belief that investor portfolios are “insured” by central banks. As we now have QEternity (the new Federal Reserve program to create $40 billion in new currency monthly with no identified end date), stocks, gold and silver are significantly lower in price than before the new printing rate disappointed markets. With extreme risk appetite combining with serious economic headwinds such as the net global contraction in real terms, Art Cashin of UBS recently considered the Black Monday of 1987. We suggest the same. Fundamentals eventually win out — so watch out!