…The unwinding of the “central bank Bubble” will be worse than either the Dot.Com Bubble or the Housing Bubble. It seems like most investors continue to show apathy even with the warnings by us and quite a few others of the “unintended consequences” of the central banks doing things that have never been done before. Those investors are in good company because it appears to us that the leaders of the major central banks of the world do not have any idea of the “unintended consequences” either.

By Comstock Partners (ComstockFunds.com)

Think for a moment about exactly what…[chances] the Federal Reserve took in continuing to keep the federal funds rate at zero or close to zero (called ZIRP (Zero Interest Rate Policy) for approximately the past 8 years…The Fed, or any of the central banks that followed the Fed's lead, had…[no] idea of the “unintended consequences” of this policy. However, if you think they took a chance with ZIRP, just think about the chances our Fed took while building their balance sheet up from $800 bn. in 2008 to over $4.5 tn presently. They did this by using three quantitative easing (QE) programs and one “operation twist” program. These programs were designed to increase the Fed's balance sheet by buying U.S. mortgage bonds and U.S. Treasury notes and bonds. The other major central banks followed the Fed's lead and grew their balance sheets in similar fashion to the Fed.

…The Federal Reserve is now attempting to unwind these extremely risky policies, while the rest of the world is attempting to copy the same risky policies that wound up painting the Fed into a corner…We believe the Fed's unwinding (as they continue to try to do things that have never been tried before) will again lead to the “unintended consequences” of a significant bear market and global recession.

They already found out what happens when they stopped each of the QE's and “operation twist” as the stock market declined sharply. This time they believe they can stop QE 3 and at the same time raise the Fed Funds rate. Again, this has never been tried before and will probably lead to a major bear market once interest rates are normalized. As we have stated time and time again, the only things that U.S. QE's have stimulated have been financial assets, real estate and certain collectibles. Stock prices have been driven to near all time highs on both and absolute and relative valuation basis while U.S. debt has yields that have been driven to all time lows.