- If one looks at the recent readings, there is incontrovertible evidence that there is yet again a huge under-pricing of risks in the financial system and, therefore, it is not a question of if, but when, generic asset bubble caused by manifold increases in balance sheets of central banks will burst.
- Specifically, currently the global liquidity has become a bigger concern than it was in the pre-2007 period what with ultra-low and near-zero policy rates and major central banks’ balance sheets 1.50 to 3 times their pre-2007 levels, adding about USD 4 trillion in incremental central bank liquidity
- the over-valuation of gold - what we can also call gold bubble - with reference to 7 competing asset classes varied from 78% against highly correlated metal prices proxied by LMEX, 62% against WTI crude, 109% against US Treasuries proxied by JP Morgan index, and roughly 230-275% against Credit Default Swap index, Dow Jones, the US dollar index DXY and the US home price Case-Shiller index
Wednesday, March 21, 2012
Gold bubble worse now than in 2010/2011? RBI ED V.K Sharma feels so
One reason why the RBI is a thought leader, is that it promptly uploads any speeches/presentations of its senior management, thereby allowing media and others to analyze and report it. And many of those uploads have been fantastic-be it the Governor's caution on value of audit, Dy Governor's views on treating customers fairly, 10 commandments for a banking career, real reasons for inflation etc. One such fantastic insight was hidden away in a speech titled The Framework for Pre-Empting Systemic Financial Risks, an inaugural Address delivered by Mr. V.K. Sharma, Executive Director, Reserve Bank of India, at the World Risk Workshop 2012, organized by R-square RiskLab at Mumbai, India, February 6-7, 2012. Now, looking at the title itself, one might yawn at another post facto subprime crisis analysis. But in reality, this speech was quite incisive, not for the old idea of a gold bubble, but for cross triangulating it and backing with facts(read it here http://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=675)
Labels: Asset Bubbles