Central Banks

The Federal Reserve saved US equities from a bubble (but there’s still a chance!)

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Via analysts at UBS on US equites. Thye argue there are seven conditions that need to be met for the formation of a stock market bubble.

Six of the seven have been met:

  1. the end of a structural bull market
  2. profits under pressure
  3. loss of market breadth
  4. a 25 year gap from the prior bubble
  5. retail investor participation
  6. a “this time is different” prevailing sentiment
    among investors

Number 7 is loose monetary policy, and while the Fed cut on Wednesday we are not there (yet, at least).

UBS:

  • “What we are missing are benign monetary conditions”
  • “Then some of
    the $6.6 trillion in money market funds could easily switch into
    equities”
  • forecasts 35% chance of a bubble forming in 2025, the trigger would be ther FOMC eventually lowering rates enough, another 100bp lower is the UBS estimate

This article was written by Eamonn Sheridan at www.forexlive.com. Source