http://www.economist.com/opinion/displayStory.cfm?story_id=15213157&source=hptextfeature THE effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That’s largely thanks to interest rates of 1% or less in America, Japan, Britain and the... [more]
http://www.economist.com/opinion/displayStory.cfm?story_id=15213157&source=hptextfeature
THE effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That’s largely thanks to interest rates of 1% or less in America, Japan, Britain and the euro zone, which have persuaded investors to take their money out of cash and to buy risky assets.
Central banks see these market rallies as a welcome side- effect of their policies. In 2008, falling markets caused a vicious circle of debt defaults and fire sales by investors, pushing asset prices down even further. The market rebound was necessary to stabilise economies last year, but now there is a danger that bubbles are being created
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Critics argue that central banks, by focusing on consumer- rather than asset-price inflation, have encouraged bubbles to grow by keeping interest rates too low. By intervening when markets fall, but doing little to curb them when they rise, they have offered investors a one-way bet.
Such critics are worried that, in their eagerness to bring the credit crunch to an end, the authorities may be making the same mistake again. Official short-term interest rates are below 1% in much of the developed world. Emerging markets, through their currency pegs, tend to import these easy-money policies, even though most of them are growing faster than the rich economies are.
Low rates have certainly persuaded investors to move money out of cash. Investors withdrew $468.5 billion from money-market funds in the course of 2009. The “carry trade”—borrowing in low-yielding currencies to invest in high-yielding ones—is back in full swing. The Australian dollar has been a popular beneficiary.
Equity markets have rebounded strongly: the MSCI world index is more than 70% higher than its March low. Even bigger gains were seen in emerging markets, with the Brazilian, Chinese and Indonesian bourses all more than doubling, in dollar terms, last year. Those rallies have by themselves helped boost economic sentiment and have brought to a halt the vicious spiral of 2008, in which falling markets forced investors to offload assets at fire-sale prices.
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Response by Topper
about 16 years ago
Posts: 1335
Member since: May 2008
Mostly, no.
A bit concerned about India's high inflation and China's money supply growth (along with bank loans). They do, however, seem to be addressing the problems here.
But the world as a whole is just starting to come out of the "Great Recession" and has high unemployment and excess capacity.
Emerging market PEs on estimated 2010 earnings are actually in line with those of the developed world according to MSCI. Their growth outlook, though, is vastly superior. Their governments are generally in much better fiscal condition and they have solid fx reserve positions.
Emerging markets could eventually get into bubble territory but they have a long way to go. A compelling story. They have the growth; we don't; what's to discuss?
Commodities have rebounded a fair amount. But their fundamentals look solid. Emerging markets are building their infrastructures and need resources. Companies have been reticent to make major capital investments in capacity.
Lots of opportunity out there for investors still. However, wouldn't hurt to have modest amounts in gold. (Emerging market governments only have tiny amounts of it as part of their reserves and generally want to increase their holdings here. In addition, most developed countries will continue to have serious fiscal problems - particularly as the Boomers enter retirement.)
Developed markets: cyclical bull market within a secular bear market. Emerging markets: cyclical bull market within a secular bull market. Commodities will largely mirror what's happening in emerging markets.
Mostly, no.
A bit concerned about India's high inflation and China's money supply growth (along with bank loans). They do, however, seem to be addressing the problems here.
But the world as a whole is just starting to come out of the "Great Recession" and has high unemployment and excess capacity.
Emerging market PEs on estimated 2010 earnings are actually in line with those of the developed world according to MSCI. Their growth outlook, though, is vastly superior. Their governments are generally in much better fiscal condition and they have solid fx reserve positions.
Emerging markets could eventually get into bubble territory but they have a long way to go. A compelling story. They have the growth; we don't; what's to discuss?
Commodities have rebounded a fair amount. But their fundamentals look solid. Emerging markets are building their infrastructures and need resources. Companies have been reticent to make major capital investments in capacity.
Lots of opportunity out there for investors still. However, wouldn't hurt to have modest amounts in gold. (Emerging market governments only have tiny amounts of it as part of their reserves and generally want to increase their holdings here. In addition, most developed countries will continue to have serious fiscal problems - particularly as the Boomers enter retirement.)
Developed markets: cyclical bull market within a secular bear market. Emerging markets: cyclical bull market within a secular bull market. Commodities will largely mirror what's happening in emerging markets.