rigged markets

Markets are so rigged by policymakers that I have no meaningful insights to offer. I am simply stunned that our policymakers seem so one-dimensional, so short-termist, and so utterly bereft of courage or ideas. It now seems obvious that in response to the financial crisis that has been with us for five years and counting, we are being told to double up on these same policy decisions [that have failed]. The crisis was caused by central bankers mispricing the cost of capital, which forced a misallocation of capital, driven by debt/leverage, which was ultimately exposed as a hideous asset bubble which then collapsed, destroying the lives and livelihoods of tens of millions of relatively innocent people.

If you listen to the [policymakers in the US and Europe], it seems that the only solution they can offer up is to yet again misprice the cost of capital, in the hope that, yet again, through increased leverage/debt, we are yet again greedy enough to misallocate capital, which in turn will lead to yet another round of asset bubbles. Such asset bubbles are meant to delude us into believing that we are now "richer." When —- as they do by definition —- these bubbles burst, those who have been suckered in will realize that their "wealth" is instead an illusion, which in turn will be replaced by default risk...

When looking for where the bubbles may be, realize this: in this current cycle, where central bank balance sheets are at the core, the bubble is everywhere — in stocks, in bonds, in growth expectation, in credit spreads, in currencies, in commodity prices, in most real asset prices — you name it! This is why I think that this current bubble, if it is allowed to fester and develop into 2013, will have such widespread consequences when it bursts that it will make 2008 feel, relatively speaking, like a bull market... When this bubble bursts, I don’t think there is an easy way out. Who will be the bailout provider?

The longer we have to wait for the final resolution to the global financial crisis, the bigger and more devastating the final leg lower will be.

-- Bob Janjuah, Nomura Investments (February 20, 2012)