$200 Billion Asset Manager Warns “There’s Danger At The Door” As Markets Lose Focus On Fundamentals

Wednesday, June 7, 2017
By Paul Martin

by Tyler Durden
ZeroHedge.com
Jun 6, 2017

There was a time “when central banking was an honest profession,” remarks TCW Group’s fixed income CIO Ted Rivelle, warning that “asset prices are not meant to be arbitrary quantities that are to be steered or targeted by central bankers.”

In his latest letter to investors, Rivelle, whose firm overseas $195 billion in assets details The Fed’s quixotic journey to kill the business cycle.. and in fact any other cycle except higher asset prices. However, As Rivelle warns,

“The signs of late cycle excess continue to spread, but faith abides in central banking “stimulus”. We all do well to remember that when markets lose focus on the fundamentals, there is danger at the door”

The global financial crisis is so nine years ago, and still the central banks can’t seem to find a way to “normalize” policy. Measures that had been introduced as emergency responses have morphed into permanent fixtures without which, we are told, growth would become impossible. And, so, not only do the balance sheets of the world’s central banks continue their relentless expansion, the rate of expansion has actually accelerated to a rate of $2 trillion per year, i.e., more than the GDP of Italy (see following exhibit). Since the 2008 meltdown, the technocrats have “minted” a collective $10 trillion worth of new balance sheet in a failed attempt to achieve “escape velocity.” Yet, what these extraordinary measures have failed to achieve in terms of wages and incomes, they have more than “made up” for in terms of leverage and asset prices.

The global capital markets have proven adept at transmitting newly created credit from one region to the next and from this asset class to that. Hence, the central banking “stimulus” programs have had a deep and very widespread scope of impact. Rates are set negative here, driving a reach for yield there. Corporate debt removed from circulation in Europe supports narrow risk premia in the U.S. But, to what end? Without a sustainable rise in GDP and incomes to match this global levitation in asset prices and leverage, the central bankers are only ensuring that when the inevitable cycle denouement comes, the down trade will be omnipresent.

The Rest…HERE

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