Dominic Frisby talks to market historian, geologist and newsletter writer Bob Hoye of Institutional Advisors.
They discuss whether or not central banks can influence asset prices and talk about the possibility of an impending credit crunch.
Central banks believe that they can depreciate a currency at will and elevate asset prices. But in Hoye’s view, asset price inflation needs some kind of speculative element. Therefore asset prices show huge swings compared to the growth curve of credit. Also Hoye states that inflation should not be confused with a rise in consumer prices.
Hoye points out that the stock market is currently signalling that we are in the midst of a post bubble contraction. The various measures undertaken by central banks in order to ease monetary conditions have not had significant results on the market, and Hoye expects another credit crisis. As indicators for an impending event, he looks to the VIX – which tracks S&P 500 volatility – and to the gold/silver ratio.