1/ Financial markets have been the cornerstone of capitalism’s success – efficiently allocating scarce capital to the best businesses. Private enterprise was disciplined to ensure returns to attract capital. Markets worked.
#bonds #equities #markets #economy #investing
#bonds #equities #markets #economy #investing
2/ The private sector proved vastly superior at generating wealth than government bureaucracies which squandered it, and the relative failures of command and control economies from Russia to France highlighted just how attractive market economies could be.
3/ Over the last few months of coronavirus, we’ve seen the complete breakdown of the financial markets as efficient allocators of capital. They have become little more than parasites, feasting on government bailouts and central bank QE Infinity programmes.
4/ The massive disconnect between the damage to the real economy and looming recession versus frothy global stock markets is unprecedented. Rising stocks suggest record earnings, while tumbling bond yields send the contradictory signal of impending economic calamity.
5/ Fund managers are blithely buying Sovereign and Corporate bonds, junk bonds and emerging market debt on the expectation they will all tighten, rising in price - all based on Central Bank QE Infinity. All financial assets have been dragged higher, despite the dismal outlook.
6/ Equity investors are no longer focused on the strength of company managements, earnings potential, their credit worth or their ability to pay dividends. All that matters is how much prices will continue to rise as QE Infinity buoys up all prices.
7/ Every financial asset’s price rises and yields fall. It’s Financial Stagflation – bonds and stock prices rising despite the global trade slowdown, virus recession and the growing sense of economic unease.
8/ The consequences of financial repression will be high. in 2006 a £1mm pension pot might have paid £100,000 a year. Today, your same £1 million pot may pay £10,000 – which will feel very unfair as inflated final-salary government pensions will be bankrupting the nation.
9/ The markets disconnect from reality means retail investors get desperate and start to believe dangerous concepts such as Tesla being worth $1000, or an electric truck maker that hasn’t sold a single car being worth more than Ford. Robin Hoods will inevitably be crushed.
capx.co/qe-addicted-ma…
10/ The collapse of financial markets into irrelevance has not happened overnight. Either we effectively let Governments run the economy, with all the attendant bureaucratic dangers that creates, or we wean markets off the QE heroin – which will hurt!
10/ The collapse of financial markets into irrelevance has not happened overnight. Either we effectively let Governments run the economy, with all the attendant bureaucratic dangers that creates, or we wean markets off the QE heroin – which will hurt!
