BANK OF AMERICA: There's glaring evidence that 2 market bubbles are fast approaching their destruction. Here's how exactly they will burst.
At every juncture since the Great Recession, the Fed has intervened with a lifeline. Most recently, it pumped billions of dollars into short-term lending markets last September when a cash crunch set in, and continues to provide liquidity.
But there are unintended outcomes of these stimulative measures, according to Michael Hartnett, the chief investment strategist of Bank of America. In a note Friday, he pinpointed two broad areas where "excess liquidity" is brewing bubbles. And he provided multiple examples of their manifestations. Sovereign bonds take the cake in this category. Bank of America data shows a record $481 billion flowed into bond funds in 2019 even as the value of negative-yielding debt soared to a record exceeding $16 trillion.
This misnomer — investors chasing assets with sub-zero yields — was so prevalent last year that another strategist concluded he was seeing "While Hartnett does not size the trend as such, it is clearly a bubble in his book. For this one, Hartnett was armed with multiple examples of investments that have caught on like wildfire because of their prospective returns. Bulls like the company because it is a trailblazer in the electric-vehicle industry.
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