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Hidden in recent Fed remarks by Yellen, are fears that CDM and CRE are bubbles.
CRE stands for Commercial Real Estate. In terms of CRE prices and change, the above chart from Gerdau shows investments across the country are soaring.
For example the General Motors building just sold for an amount that values it at $3.4 billion, the most expensive office building in the United States.
Also William Ackman and other investors purchased a penthouse apartment at One57 in Manhattan for over $90 million, the highest price ever paid in New York City, as an investment to flip for a profit.
The CRE bubble did not burst in 2008, but evidently is bigger now.
CDM stands for Corporate Debt Markets also known as Debt Capital Markets. In terms of CDM, the above chart by Dealogic, dated February 5th, 2015, shows a 30% increase in the spread for the year.
Specifically, the average spread to benchmark on 30-year global debt issuance peaked at 193bps in January 2015, a 30% increase on January 2014 (148bps), marking the highest monthly average benchmark spread since October 2009 (206bps).
Here is exactly what the Fed minutes said on 2/19/2015.
“However, the staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets (CDMs), despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector.”
At least the Fed is aware of the bubbles and not totally focused on interest rates.
With all of the computers and automation out there, why aren’t markets open all day? It is because of price fixing at the close. Not because traders want a family life.
Not one but SIX banks face fines up to $2.4 Billion for shady currency trading.
Here is the list of banks: JPMorgan Chase, Citigroup, Barclays, HSBC, Royal Bank of Scotland and UBS.
These banks were caught red-handed with text messages bragging about their shady trades to manipulate currency trading. They talk about the numpty, aka idiot, traders, Here is a summary of the text messages:
If you want to see the full list of text messages, look at this:
How do we solve this problem? Not with fines.
What do all these trades have in common? They were done at market close.
This problem is not just with Forex trading. It also involves the stock market.
We solve this by making the markets stay open 24 hours a day, 7 days a week.
Isn’t freedom defined as being able to buy a burger or a stock at 2 AM?
Note: Forex claims to be open 24 hours but each time zone closes at 4 PM locally.
I am talking about huge swings in the market.
No, not that type of swing. I am talking about the huge daily changes in market value. See the chart below courtesy of bigcharts.marketwatch.com.
Specifically, this chart shows huge daily changes in the Dow Jones Industrial Average (DJIA) during the week of Sept 22-26.
Monday 9/22 down 105
Tuesday 9/23 down 100
Wednesday 9/24 up 150
Thursday 9/25 down 250
Friday 9/26 up 167
The summary is the market is frothy. Why? Because the QE3 is winding down, the economy is still struggling and the financial sector has been over stimulated. Thus there is a lot of nervousness.
The conclusion: we are overdue for a big correction.