"Awash in liquiditiy" (fg)

"Awash in liquiditiy" is a term used in an era of massive monetary expansion created by central banks. According to economist Robert Shiller,

[t]he idea seems to be that there are a lot of liquid assets lying around, and that they are being used to get money to bid up the prices of stocks, housing, land, art, etc. [..] Traditionally, "awash with liquidity" would suggest that the world's central banks are expanding the money supply too much, causing too much money chasing too few goods. But if that were the today's problem, one would cause all prices - including, say, clothing and haircuts - to rise. [..] The term "awash with liquidity" was last in vogue just before the US stock market crash of October 19, 1987, the biggest one-day price drop in world history [and] in 1999 and 2000, before the major peak in the stock market.

Consequently, the term could even be called an approximate synonym for "bubbly." And now, the alarm bells should ring! We just saw all-time highs for both major stock indices, i.e. Dow Jones and DAX, coupled with increasing world-wide interest rates, re-pricing of (credit)-risks, the breakdown of two big U.S. hedgefunds. The only factor still contributing to high asset prices is the outlook for corporate earnings. However, this process will not hold on forever since high expected corporate earnings heavily depend on the economic outlook. Major economic-outlook indicators fell recently (e.g. ZEW indicator for economic sentiment), so we should watch asset markets carefully!