Monday, September 15, 2014

BIS: All Asset Prices Elevated

In its quarterly review, released Sunday, the Bank of International Settlements (BIS) stated that the Central Banks have elevated prices of all asset prices. As reported by Reuters-

In its quarterly review, the BIS said financial market volatility spiked higher in August on the back of geopolitical concerns and worries over economic growth, but quickly returned to "exceptional lows" across most asset classes.

"By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to contribute to an environment of elevated asset price valuations and exceptionally subdued volatility," the BIS said.

The comments echoed the institution's warning earlier this year that rock-bottom interest rates had led to "worrying" signs of unsustainable growth in property and credit markets in some countries.
At some point,  manipulating asset prices will lead to another downturn, and with all prices being manipulated the risks we see an event paling the 2008/2009 recession are increased. But similar to the Heidelberg Uncertainty principle, you can place a probability on what or when but rarely both. Historically, downturn has corresponded with a contraction in the central banks balance sheet and/or high powered money, but will this time be different? Will it be a change in the rate of change that sends events down?

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