US stocks continue to breach record levels while highly rated government bond yields slide - - all with the prospect of continued support from the world’s central banks.
Indeed, expectations that the European Central Bank would unveil a package of supportive policy measures when it meets next week were bolstered by the release of select weak eurozone stats. It must be noted that all this cheap money is finding its way into various asset classes, most notably equities and debt products. Hence, record levels for Wall Street alongside historically low sovereign bond yields.
This wild euphoria is supported somewhat by signs of an improving economic environment, notably in the US, but remains way ahead of market fundamentals. U.S. government bonds are heading for a fifth monthly gain, the longest since 2006, as growth --- but not rapid growth --- underlined an appetite for long-term debt of all stripes. The new ranking of global competitiveness has just been released and underscores some of the key themes in these pages. The US leads, Europe struggles to recover, and big emerging markets grapple with some new realities.
Given the ever tighter spreads and the relentless march of markets, some, including the European Central Bank, have warned that investors' wild pursuit of higher returns could be creating new price bubbles, sounding the alarm as financial markets chase quick gains. In a strongly worded message they clearly underscored concerns that have been penned in these pages as well, There may be an ugly downside to runaway market enthusiasm. The ECB cautioned that the dash for higher returns could suddenly unravel, sending the investor herd charging in the opposite direction.
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Easy money and the timing of the Fed’s policy shift continue to dominate across the globe. Recovery is widely assumed for the next two years. But deep-seated weaknesses have also become more evident.
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Very obvious financial vulnerabilities, repercussions from various political stalemates and serious geopolitical concerns are aggravating the problems of clearly insufficient growth in the world economy. And let’s not forget that many of the challenges cannot be resolved easily...
Full Abe Gulkowitz The PunchLine letter below...
TPL May 29 14 [8]