Market pundits pointed to the Federal Reserve’s downbeat economic assessment as the main reason behind the equity sell-off, although the currency markets continue to be the driving force behind wildly volatile global markets.  Perhaps the Fed’s downbeat assessment and announcement of Treasury purchases was somehow behind the dollar’s rally; or perhaps it was instead that traders had become sufficiently bearish on the dollar to ensure that Mr. Market did an about face - with a “rip their faces off!” rally.

Stocks were weak and the dollar was generally strong.  But the real show was provided – once again - in fixed income.  Prices continued their melt-up – yield meltdown – with Bubble Dynamics becoming only more conspicuous each passing week.  And I know that most dismiss the Bubble thesis and view prices as reflecting poor economic prospects and the deflationary backdrop.  I would respond that the environment remains extraordinarily conducive to Bubble expansion.

Barron’s Jonathan R. Laing captured the current mood with his article, “Time to Print, Print, Print.”  With inflation risks so low and the scourge of deflation so potentially devastating, many believe it would be a dereliction of the Federal Reserve’s duty not to aggressively expand its securities holdings (“print money”).  Similar reasoning was used to justify the ultra-loose monetary policies earlier this decade that inflated the mortgage/Wall Street finance Bubble. 

Today, extreme activist fiscal and monetary policies inflate the Global Government Finance Bubble.  After the 2008 fiasco, I have a difficult time comprehending how analysts can remain dismissive of Bubble risks.  And with an increasingly conspicuous Bubble at the heart of our monetary system, our central bank should not be reinforcing the market perception that the Fed is there to backstop the markets and economic recovery with open-ended Treasury purchases.  Instead of a well-functioning marketplace (and central bank) working to discipline a profligate Washington, dysfunctional monetary and market environments continue to accommodate perilous Credit excess.