Ghost of Igloi wrote:
Ryan Foreman wrote:
Goi,
Here is a question to ponder.
Can bubbles exist anymore if central banks are ultimately going to buy $trillions of a bad bank's trash?
Ryan,
My belief is it is all dependent on the psychology of investors. Once investors lose confidence that central banks can manipulate prices that game is up. You would think there is an end point. I see the investment environment becomes more risky rather than less. I agree though, that is the question.
Igy
I generally agree with that. But that is sort of a different issue. I go back to my original point that there is no panic in this market (at least on the surface there doesn't appear to be) even though there are good reasons to panic. I mean, 12 years ago if DB was trading at a $14 billion market cap with the biggest portfolio of derivatives of all the banks, I think everyone would be sprinting for the fire escapes.
Maybe the central banks can no longer manipulate prices. I think we may very well be close to that point. But right now Wall Street appears to be more confident than ever that any kind of run on banks is not happening. Perhaps forever. If somebody is waiting for that crises tipping point I would say one shouldn't hold their breaths.
I suspect how things are going to play out is that there will be a slow drift into deflation. A few years will go by. People will look at their 401Ks and realize that they are not getting much return on their investment, either from stocks or bonds. To save more they will realize they will have to spend less and a vicious downward cycle is established. But it will be very gradual and with no panic because the financial system will continue to function even if its all made up of zombie banks.