Executive Summary

• Have overt central bank propping efforts created a bubble in asset prices?
• Will these overinflated markets EVER collapse?
• What to expect when today's smoke turns into tomorrow's conflagration
• Which assets are most sensitive to a price correction if the central banks' efforts fail?

If you have not yet read Part 1: Where there’s smoke… available free to all readers, please click here to read it first.

Question #2: How much does overt central bank propping have to do with their elevated prices?

Overt propping of the stock and bond markets also happens with some regularity.  First, at the macro level, dumping hundreds of billions of freshly printed currency units into the financial markets each month without any question whatsoever, plays a huge role in keeping them elevated.

One the one hand you have the central banks talking at every turn about how they are confident in the economy, that they feel the data is good, if not solid, and yet you have them dumping money into the financial “”markets”” (double quote marks because one is no longer sufficient to convey how unreal they’ve become) at the fastest pace in all of recorded history through the first 4 months of 2017; $1 trillion dollars(!!):

(Source)

If you were wondering why these markets are having such a difficult time going down, $250 billion a month goes a long way towards helping you appreciate why that’s the case.

It’s an astonishing number, and I want you to appreciate the fact that central banks would not be dumping record amounts of thin-air money into the ““markets””

The next point is that both the Bank of Japan and the Swiss National Bank admit freely to buying lots and lots of equities.

The Bank of Japan has gone so far (way too far in my view) that it is now a majority holder of ETFs that cover the entire Japanese stock market.  With fully two-thirds of the entire ETF market, what’s Japan’s exit strategy?  Well the latest trial balloon is “there won’t be one.”

(Bloomberg) — Here’s something the Bank of Japan could do as pressure builds to address its towering pile of equity holdings.