What's going on with the Stock Markets?

Hi All,

In a nutshell the major stock markets are in what we call a bubble , wherein company  shares are grossly overvalued in relation to the businesses profitability.  The market is correcting itself, but why the bubble?

The bubble began after the 2008 crash and subsequent bailouts of banks. In an effort to get banks lending again, which they didn't want to do, even with the ability to borrow with no interest , the desperate central banks and treasuries coordinated  around the world electronically " printed " vast amounts of currency, from $, £ , € , ¥  ,Chinese Yuan  & Swiss Francs. 

 This new money was allocated to banks , in return the central bank got  the   government bonds the banks hold as capital.  In China's case they simply told their banks to lend, lend, and lend , some of which outflows to the world via Hong Kong, ergo the high house prices in various global cities and for China an equally massive property bubble.

If you are wondering how this is done, it is really easy peasy.  Government debt is tradeable within an exchange. In the UK these are called Gilts, in America Treasuries.  So the investment banks buys at auction a nice of paper for £100 ("par value" ) which will pay £5  per year , for 5 years, after which you get the £100 back as well.  The government uses the £100 to fund itself.  The investment bank can either hold that paper and take £5 a year  or sell it on to members of the public, foreigners , other banks, insurance companies etc , for profit (or loss) . In the money printing game the central banks were buying up bonds above their nominal  £100 value.  Thus they made government borrowing cheaper and made asset holders even richer. 

For better or worse, banks sniffed a quick win. Rather than lending to sound businesses or people, they actually placed this  free money into global stock markets, property and loans to third world countries (higher interest rates , but highly risky) as well commodities (gold, oil, silver, platinum, and food stuffs) . In short,  the banks have gained from this fee state money and the other class is this notorious "1%"  or the people who already had assets and have seen these increased thanks to state money printing across the developed world. Personally I think the Milton Friedman "helicopter money "  would have been better distributed to the public on a per capita basis  without using banks as in effect money brokers. 

Now the party of a decade amount of free money is over , with the Fed , the ECB and Bank of England ending their bond purchase and increasing interest rates.  Thus there's enough people in the market who've decided to sell off , reasoning that the bubble ,with ever rising value,  won't continue. It's basically a de facto legal  pyramid scheme. If you bought when stocks or at least the solid "blue chip" were low and sold in January you'd be sitting on a nice cash pile , simply by virtue of a rising stock market , rather than being a result of  any acumen .

The consequences are what matters :

1). Who will buy the trillions of American , British and Southern European debt ,  when there's no central bank buyer?  And of course if there's less buyers, this means government will pay higher interest rates.  Will this bring down these in debt countries?

2). The social impact of what has been a state funded redistribution scheme for the very well off hasn't really been discussed by mainstream pundits. But this isn't surprising as they still cannot grasp the people's revolt or blowback via Brexit, Trump or even Corbyn.

3). If you're an investor then it's back to proper analysis and the  work of discriminating which stocks to buy and sell.