Are we at risk of entering a new credit bubble?
Commentators are now talking about the third credit bubble since the 1990s, driven by the ongoing era of low interest rates, says Pie Funds chief executive Mike Taylor.
After the GFC and the last credit crunch the debt overhang was never properly dealt with, it was passed to central banks, he said.
"What that has meant is that asset prices like property, shares and bonds have all gone up," he said. "Now capital is not being allocated taking into account the appropriate risks."
With stock market around the world still pushing through record highs it was important to pay close attention to the interest rate yield curves, he said.
Absent of a major external shock, equity markets had their worst periods during recessions.
Yield curves had tended to be a very reliable indicator of recessions, Taylor said.
With a normal yield curve short term interest rates are typically lower than long term rates.
As inflation returnsand a boom takes hold the yield curve starts to move in the other direction, so short term rates rise to match or surpass long term rates.
"The yield curve starts to invert, that's the worrying sign, if you see that then we're almost certainly headed for a recession," Taylor said. "Every recession since World War II has been preceded by an inverted yield curve."
In the US there were now signs that the Federal Reserve as slowing its projected track of rate rises, again.
The failure of Donald Trump to push through any economic stimulus has the market picking one more hike this year instead of three.
"So if that's what the Fed's doing perhaps this cycle can last a little bit longer before the yield curve starts to [invert], he said.
- Market Watch is produced in association with Pie Funds