When this Happens, the Market will Crash

Evaldo Albuquerque (March 5, 2013)

Investors, overall, are feeling extremely optimistic. It seems there’s nothing to worry about.

But should investors be worried about anything?

That’s the question the website Business Insider asked some analysts, economists, and traders across Wall Street. Their responses resulted in a series of charts that keep some investors up at night.

In the next couple of weeks I will share with you the charts, including my comments and investment implications.

The first chart comes from Niels Jensen, founder of Absolute Return Partners. And it shows the explosion in central bank assets across the globe.

When they print money, they accumulate assets. So we can use the size of their balance sheets to measure how much they’ve printed.

Here’s the chart that worries Mr. Jensen:

See larger image

He believes this massive money-printing from central banks around the globe is the only reason stocks have rallied.

So he worries that central banks may have started to cut down on the money-printing.

I think it’s too early to reach that conclusion. We’ve seen this kind of small contraction before in 2009 and 2010. I think central banks are just taking a break.

The Fed has said, on several occasions, it won’t change its policies until unemployment drops below 6.5%. According to its own estimates, that’s not going to happen until 2016.

With the new government in Japan, the Bank of Japan is just getting started. They said they will print until inflation reaches 2%. Inflation rate is currently negative.

And the European Central Bank (ECB) won’t hesitate to print more once the European debt crisis makes a comeback. As the ECB chief said, they will do “whatever it takes” to save the euro.

So I think Mr. Jensen shouldn’t be worried just yet.

But he’s absolutely right when he says the market will crash once the money-printing madness stops. Enjoy the party while it lasts.

Regards,

Evaldo Albuquerque
Editor, Pure Income

When this Happens, the Market will Crash

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