Warning To All Investors: Bundesbank’s Weber, JPMorgan’s Dimon, Roubini Warn About Global Easing. BofA Warns Of 1987 And 1994 Scenarios. Yale’s Shiller Sees Housing Market Have Further to Drop. Bill Gross Is Scaling Back On Derivatives On Incoming Inflation. US GDP “Growth” Since The “Recovery” Is Now The Worst In US History!!

InvestmentWatch

Bundesbank’s Weber, JPMorgan’s Dimon Warn About Global Easing

The central bankers who saved the world economy are now being told they risk hurting it.

Even as the International Monetary Fund cuts its global growth outlook, a flood of stimulus is running into criticism at the World Economic Forum’s annual meeting in Davos. Among the concerns: so-called quantitative easing is fanning complacency among governments and households, fueling the risk of a race to devalue currencies and leading to asset bubbles.

“Central banks can buy time, but they cannot fix issues long-term,” former Bundesbank President Axel Weber, now chairman of UBS AG, said in the Swiss ski resort. “There’s a perception that they are the only game in town.”

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Quantitative easing “is one of the greatest monetary experiments of all time, they’ll be writing books about it for a thousand years,” said JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who is also in Davos.

Warnings about a new money glut are not going unheeded. U.S. Federal Reserve Chairman Ben S. Bernanke said Jan. 14 that officials must “pay very close attention to the costs and the risks” of emergency stimulus. Bank of England Governor Mervyn King said last week “the search for yield appears to be beginning again.”
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Roubini: QE ‘Zombies’ Are Coming to a Town Near You

Nouriel Roubini, the New York University economist noted for his pessimism and accurate prediction of the global financial meltdown, is worrying these days about the long-term impact of easy money policies by central banks.

Roubini said the quantitative easing (QE) programs pursued by the Federal Reserve and other central banks may overwhelm the economy with debt-strapped banks, businesses and consumers, according to The Guardian.

“Over time, you get zombie banking, zombie corporates, zombie households, which is damaging in the long term,” he told an audience at the World Economic Forum in Davos, Switzerland. Zombie banks refer to financial institutions that are insolvent but are propped up by cheap money from the government.

BofA Warns of 1987 and 1994 scenarios

For a while now, BofA Merrill Lynch Chief Investment Strategist Michael Hartnett has been out in front of the rest touting the “Great Rotation” theme for 2013 – and he says it’s already begun.

Even though the public data don’t show investors shifting out of bonds and into stocks yet, Hartnett says BofA’s data on client position does show exactly that.

In a new note, Hartnett writes (emphasis added):

The past seven years have seen a Great Divergence in terms of fund flows. Investors have poured $800bn into bond funds and redeemed $600bn from long- only equity funds. But recent data show the first genuine signs of equity-belief in years. The past 13 days have seen $35 billion come back into equity funds ($19 billion of which is via long-only).

And while the industry flow data does not show “rotation” out of bonds, our private client data does. The structural long position in fixed income is simply threatened by low expected returns thanks to low rates and the mathematical reality that a small rise in rates can cause total return losses in portfolios. Table 1 shows that negative returns would occur if the 30-year Treasury yield rose from 3.03% to above 3.26% anytime in the next 12 months (and note the same yield was 4.53% just 3-years ago).

However, there are still two big risks to an “orderly” rotation out of bonds and into stocks this year, in Hartnett’s view. He says the possibilities of either a “1994 scenario” or a “1987 scenario” jeopardize a smooth transition: