Deutsche Bank: "We Fully Understand Why The Authorities Wouldn't Want Free Markets To Operate Today"
A brief stroke of brilliance from Deutsche Bank's Jim Reid:
Our opinion is that the BoJ is the latest runner with this demand baton which may in turn actually force others into the race (ECB in the future?), or encourage others to carry on QE for longer (the Fed?) thus reinforcing this artificial demand for fixed income. While such technicals remain in place its hard for defaults to rise significantly in the foreseeable future even with what is weak growth, average fundamentals, credit deterioration and a rise in more risky deals. However is it healthy that the default/insolvency cycle is being sedated in so many large economies? Surely the financial system and life in general has prospered through history on the basis of creative destruction. Indeed all the good looking and intelligent readers of this note are products of survival of the fittest. Economic growth over time is helped by a regular cleansing. So are low defaults helping to lock in low growth for years to come across many large economies? Clearly there are other factors at work here but we think that what's great for credit investors isn't necessarily good for the global economy. A bit of a paradox. We would stress that we fully understand why the authorities wouldn't want free markets to operate today as the risk of a huge global default and unemployment cycle would still be very high. However their intervention has a cost in our opinion. Socially this might be worth paying but we do think it exists.
Is it worth paying? Or is it just because the 64% youth unemployment in countries like Greece hasn't manifsted itself in social revolt yet, that economists believe that the current course of action, which anyone with half an ounce of common sense realizes is destructive, is sustainable? But at least day after day we get record high after record high. In that case perhaps the correct word is not "socially", but "marketly" (sic).