SPX News by Allie Longford on 02:42 March 10, 2020 EST
Many analysts are arguing that the Coronavirus is making the financial markets overreact and while
this may be true what they are not saying is that the pandemic is just the catalyst of the bursting of what is an otherwise gigantic bubble overinflated by the coordinated actions of the irresponsible central banks in the develop world. And as always, just like with any other bubble in history, this one will deflate in a disorderly manner.
It has been over 10 years since the FED, chaired back then by Mr. Ben Bernanke started to reinflate the financial markets following the Great recession of 07/08. The ECB, BOJ and BOE did not have reservations in pulling out of their hats their respective flavors of the FED's Quantitative Easing -QE-, a fancy name to describe the process where newly created out of thin air money is put in circulation by means of buying, first government bonds, and then all kind of corporate bonds and even stock.
While, this strategy may have made sense in 2009 for a limited period of time, subsequent central bankers shared the opinion it was a good idea to make this a permanent feature of the world's financial markets and, of course, this has created massive distortions in them. For instance, thanks to the stimulus, artificially low interest rates have dented appetite for saving capital as there is no yield to be made, governments have not had any incentive to reduce their debt as hardly no yield has to be paid and bonds have been issued even to perpetuity while corporates have been able to borrow huge amounts that have been in many cases dedicated to failing enterprises or to buy their own stock propping as a result their market value.
The consequence of this is that public and private debt has skyrocketed for over a decade and this, at some point, will have to be paid by someone. The payee will be either the debtors or, more likely, the creditors being forced to accept 'restructuring of their debt' another fancy name to describe not being paid in full or at all. Again, restructuring is never a smooth process and restructuring much of the entire world's economy is just another level.
It is very likely we are only seeing the start of a two/three year period of massive adjustments and the pain of detoxing from the cheap drugs offered by the dealers -the central banks- is going to be felt across the globe. Buckle up and be prepared.