While the ASX isn’t immediately going along with Wall Street’s overnight record, in time we’ll catch up with the bigger underlying fundamental for it – the credit bubble – as the immediate excuse of cheaper oil prices fades.

The weaker resources prices that lifted the Dow are depressing the All Ords, given the greater weighting of resources stocks in our market, but more important is the credit bubble fuelling demand for all asset classes.

Macquarie Bank international economist Mark Tierney has been plotting the credit bubble’s rise, believing there’s been nothing like it in modern financial history. Despite the round of monetary policy tightening, global interest rates remain relatively low.

“The Fed stopped at 5.25%, and it’s giving no indication it’s going to tighten monetary policy at all from here,” Tierney says in a Eureka Report interview. “Basically it looks like they’re taken their foot off the brake and there’s so much leverage capital out there, all you needed was a signal that interest rates in the United States were going to be stable and it’s now pouring forth and it will continue to pour forth until the central banks decide to tighten policy again.”

In his bulletin to clients this morning, Tierney points to the rise and rise of the S&P 500 real estate index despite the US housing industry downturn as one more example of the global credit bubble that’s chasing yields.

“As returns in other asset classes have been squeezed, especially corporate bonds, investors in REITs (property trusts) have been forced to lower the bar on acceptable returns in real estate,” he writes. “Massive M & A transactions, another result of easy credit conditions, have just aggravated the imbalance between investment demand and the supply of assets.”

Now guess where the Australian property trust industry is increasingly investing in its own search for deals and yield? The bubble-fuelled US property market. It’s a great game while it lasts.

Peter Fray

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