Bubble Fears Are Rising as Financial Conditions Flash Boom Times

Yahoo Finance

Bubble warnings are ringing louder after a week of dovish central bank bombshells fueled the easiest financial conditions in nearly four decades.

BlackRock Inc.’s Rick Rieder and Allianz SE’s Mohamed El-Erian are among those warning that systemic risks will only multiply, unless monetary officials take more decisive measures to pare extraordinary pandemic stimulus. While policy makers are acutely aware of the dangers in the easy-money era, their accommodative stances are encouraging ever-increasing flows to the riskiest markets. The crypto industry just hit over $3 trillion in value, the biggest junk bond exchange-traded fund is booming after getting the most cash since March, and major stock indexes are sitting near records. No wonder a cross-asset gauge shows the easy U.S. investing climate is one for the history books. The risk binge is intensifying worries over market froth and lax central bank watchdogs. The world’s biggest, the Federal Reserve, signaled last week a delay in interest-rate increases until the labor market is in better shape after it announced a widely expected reduction in asset purchases. “The risk is you’re creating overheating prices,” Rieder, BlackRock’s CIO of global fixed income, told Bloomberg TV on Friday. “The risk to the system is you get too much liquidity in the system creating excess.” Last week the Bank of England shocked markets with a decision not to raise rates. Meanwhile European Central Bank President Christine Lagarde pushed back against wagers on a rate hike in 2022.

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