Trend Forecast

Assets of the 10 largest central banks have surged from $7 trillion in 2006 to $23 trillion today, according to Renaissance Capital. That’s equivalent to 29 percent of global-stock-market capitalization, or 43 percent of the world’s tradable fixed-income securities. And, as a result of leading central banks’ massive purchases of bonds and other securities since the Panic of ’08, they now own a fifth of their governments’ total debt, according to the Financial Times and the International Monetary Fund. In total, six central banks hold more than $15 trillion in assets, according to the IMF. That’s more than four times the pre-crisis level. Of this, more than $9 trillion are bonds trading at negative yields. Therefore, considering central banks’ unprecedented measures to prop up equity markets and the banking system following the Panic of ’08 — factors that created asset-price bubbles across the globe, according to the Financial Times and IMF — we forecast there will be market corrections greater than 10 percent. That will happen when central banks increase interest rates (which will be required to sell their assets) to levels unacceptable to financial-market gamblers and real estate developers.

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