On January 14th, 2015 I penned Toil, Trouble, Crash and Bubble! Monetizing The Biggest Crash of the Millenium? with the following graphic...
For those who think I'm doing the Doom & Gloom thing, I simply suggest you do the math. The ECB does QE2, the currency markets go bonkers as those central banks withsmall balance sheets run out of the way of the steamrollers (but nobody expects lower quarterly results, of course), and every fund and their aunt Petunia engage in the most thoughtful macro and intensive fundamental analysis ever possible. What's the result of this deep, introspective thinking. Chase the Fed ECB, of course!
This is what the sacrosanct advice of Goldman Sachs macro research department suggests, after all. They accurately predicted the (obvious) ECB QE program, and suggest you pile into EU equities for the same reason the rest of the fund world did - low rates mean higher stock prices, right? Well, it's not so simple. I think investors should look a little deeper and dig past the groupthink. Europe has severe structural issues that a NIRP answer will exacerbated vs. ameliorate, at least over the medium term. Yes, you get that short term pop, but then what. I don't think the Goldman nod to groupthink is a good idea. After all, they also suggest - "Sell the Swiss franc against the Swedish krona: A monetary policy divergence play." This would have lost forex traders' a fortune. Wait a minute, it did lose them a fortune, didn't it. One really should have seen it coming, for those small countries cannot outrun the ECB, and it was obvious, reference It's All Out War, Pt 3: Is the Danish Krone Peg to Euro More Fragile Than Glass Beads? The Danish National Bank Infers So!
And as for the wisdom of piling into those equities because we're NIRPing... Professor Shiller calculates us at being at an all time, worldwide historical high in terms of real PE. Wait, but... It's different this time!
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