Given these facts, how is it possible that equity markets in the United States are making historic highs? Brexit vote did kick off immediate panic that led to $2 trillion of value being wiped off global asset prices. Sterling suffered the biggest one-day drop in history and U.K. real estate is projected to drop nearly 30 percent as a consequence of Brexit. But all is forgotten with more stimulus or at least hopes for it.

Buying Corporate Bonds With Public Money, While Peripheral Banks Are Failing

The political uncertainty is taking place against equally uncertain financial background in Europe. The volatility reminiscent of the 2008 crash ushered in pledges of coordinated action from central banks around the globe with ECB already buying corporate bonds in the midst of the vote. Can anyone with any sense believe it is normal for ECB to buy corporate debt? So far, ECB bought debt of about 150 companies, as this Bloomberg story indicates. A number of non-elected officials directing public money to this or that privately held enterprise, what could possibly go wrong? Surely, it is a sign of a healthy economy.

At the same time Italian and Portuguese banks are imploding right before our eyes.

Japan under Finance Minister Shinzo Abe is announcing some sort of ‘helicopter money’, an extremely aggressive spending package that amounts to handing money around far and wide in an attempt to spur the economy. He has since denied it, but it seems to be just a reaction to an uproar the news had generated. Germany is auctioning 10-year bonds at negative interest rates. We are in an economic twilight zone indeed. All stops are pulled out to prop equity markets and Brexit shock seems to be forgotten.

Are Fixed Income People Smarter Than Equity People?

But don’t be deceived by all-time highs in the S&P. Astute market participants are not buying it. Every day we hear pronouncements from top investing minds, such as Jeff Gundlach, Bill Gross or Kyle Bass, explaining that this is not going to work as intended. But those are just words; let’s look at some important metrics of underlying health of the economy and the market.

U.S. Treasury yields (10 year at 1.5 percent) are so low, that Barron’s is forced to run a story with the title “Why Are Treasury Yields So Shockingly Low?” So, both stocks and government bonds are at historic highs in the U.S., in a repudiation of every normal market relationship between the two. ‘Shockingly low’ yields are not a sign of a growing economy, quite the opposite. It is an indication of Japan style stagnation and next step, just like in Japan, is helicopter money.

Maybe Europe is doing better? No. Germany just auctioned off 10-year bonds for the first time at negative interest rates. According to Bank of America Merrill Lynch investors are holding about $512 billion of negative yielding corporate investment grade debt! And this is at a time when some of Europe’s biggest banks are on the verge of collapse.

And do not forget Deutsche Bank whose stock price lost more than 50 percent over the past year and has not really recovered with recent stock market highs. So, some investors are not buying it.