>Is there a risk of new bubbles? (NATIXIS)

Since the 1990s, there has been one speculative bubble after another linked to excess liquidity and indebtedness: equities, real estate, emerging assets, commodities, etc.

Could new bubbles appear today, in the aftermath of the crisis?

Certain developments could indicate that the answer is no:
− the reduction in "global imbalances" that is leading to a smaller increase in global
liquidity;
− the reduction in debt leverage in OECD countries (not seen at all in emerging countries),
which results both from demand effects (excess indebtedness) and supply effects (greater caution among banks and increased capital requirements); this should normally rule out bubbles directly linked to indebtedness;
− the memory of crises (bursting of bubbles in the past);
− the lower proprietary trading activity in banks.

But other developments may on the contrary indicate that bubbles will return:
− excessively high demand for return on equity, which persists;
− while global liquidity growth is lower, its level remains extraordinarily high, and monetary policies in OECD countries will remain expansionary;
− renewed expansion in hedge funds;

− very high international capital mobility, precisely seeking high returns (on emerging
country equities and commodities) and which, moreover, is preventing emerging countries from conducting more restrictive monetary policies;
− decorrelation between commodity prices and the spot market situation of these commodities, which already shows the presence of "bubbles".

What would be needed to prevent bubbles in the future? Probably:
− the return of "normal" guidelines of monetary policies and a reduction in excess liquidity;
− increased capital requirements for "non-banks"; a more specific monetary policy
management (for example via statutory reserve ratios);
− obstacles to international mobility of purely financial capital, enabling a return to
"normal" monetary policies in emerging countries;
− extending the horizon for investors in terms of holding assets, to reduce the number of
investors seeking short-term capital gains.

To read the full report: NEW BUBBLES