“Quantitative easing has set off another Sharp, and so far containable asset bubble.”

Andrew Smither, head of the research-firm Smithers&Co, said the S&P is 40% overvalued basing on his predictions of the Q-ratio and the adjusted price-to-earnings ratio by Robert Shiller.

Declines are becoming more and more likely because banks will need to sell more shares to raise vapital. Smithers said “Markets are very vulnerable for the end of quantitative easing.”

This is exactly what I’ve been posting about the last couple of days. The governments around the world have been busy inflating the economy and keeping the system alive using heavy drugs. Now Smithers says we might have become addicted to those drugs.

What we blame the FED for is for keeping the interest rates too low for a too long time and creating the bubble of which we are now facing the burst. According to Smithers “Quantitative easing has set off another sharp, and so far containable asset bubble.”, the problems are being solved by creating the next.

Smithers: “If it [the bubble] gets too high and starts come down then we’ll head straight back [into recession] “

The drug we’re addicted to, however, is almost fully used. “Central banks, they’ve got to stop some time and if that happens everything will come down.“