The massive wave of liquidity and it's consequences

I remain, the markets are living a lie today behind a massive wall of liquidity. It is inflating assets/markets and the commodities into mini bubbles that bares no semblance whatsoever to what is happening in the real economy.

Roubini summed it up rather nicely today.

www.businessinsider.com...

Roubini: A Big Crash Is Coming, But I Don't Believe In Gold

"Nouriel Roubini believes that a "wall of liquidity" is chasing all kinds of assets, yet once the economy disappoints expectations, it will all come crashing down.

Yet for Dr. Doom, gold isn't the answer.

According to him, despite the temporarily asset bubbles right now, we're still in a deflationary world and we'll realize it soon enough once growth stagnates and all kinds of inflated asset categories come falling down.

IndexUniverse: Roubini: I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.

The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon."

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The most sane man on the street, IMO.

He is so right, and everybody outside the US know it. The CNBC pundits have stopped any negative things about the market and have tried to be more positive about the "green shoots" (I think Larry Kudlow coined that term in the spring). We are in a liquidity trap. They can't raise rates because that will hurt the housing industry and other interest related financial instruments. If they don't raise rates and essentially keep it at zero, they will destroy the dollar (which is happening know), and make bond holders and buyers wary of investing/loaning to the US. Welcome to the world of INTENDED consequences, they knew that this day would come but they put blinders up and whistled into the wind.

Originally posted by hoghead cheese
He is so right, and everybody outside the US know it. The CNBC pundits have stopped any negative things about the market and have tried to be more positive about the "green shoots" (I think Larry Kudlow coined that term in the spring). We are in a liquidity trap. They can't raise rates because that will hurt the housing industry and other interest related financial instruments. If they don't raise rates and essentially keep it at zero, they will destroy the dollar (which is happening know), and make bond holders and buyers wary of investing/loaning to the US. Welcome to the world of INTENDED consequences, they knew that this day would come but they put blinders up and whistled into the wind.

Great post - thx