Normally, prices are self-limiting, notes Citi's Matt King: yields rise – inflows hit – prices rise – yields drop – outflows hit – price drops, and back to yields rising. But, it appears for now that we are in a positive feedback (or hyperbolic) loop, where – thanks to central banks pushing too much money to chase too few assets – prices rising implores inflows creates "higher returns" which in turn encourages more inflows (as risk is ignored). King's analogy for this precaiorus situation is pulling a brick with a piece of elastic – nothing happens for a long time… and then – all of a sudden – woosh. Ring any bells?
Normally, price movements are self-limiting (a negative feedback loop)…
But as Matt King explains…
Bubbles, however, behave differently…
The question is – obviously – which process are we following in which asset class?
Interconnections make for stickiness – but also fragility…
But everyone is looking at inflows…
Market movements have become much more correlated with positions…
So what happens when the flows taper? Or when markets start to turn down (stocks) or up (Treasuries)?
And that disilusionment is starting one asset at a time…
via Zero Hedge http://ift.tt/1lxDwiB Tyler Durden