The excessive money printing by central banks around the world only highlight the fact that they have not learnt any lesson from the global financial crisis. Indeed, the financial crisis was a product of loose policies by the US Fed that led to Americans going on a borrowing binge as interest rates remained low. Bubbles began forming and ultimately it burst in 2008.
Since then, the only response of the policymakers has been to do more of the same. They have again resorted to loose monetary policies and massive money printing. Rather than bolstering growth and job prospects, all it has done is concentrate wealth in the hands of few people. As reported in Moneynews, with so much money sloshing around, most of it is finding its way into rather unusual places such as rare paintings, gemstones, racehorses and the digital currency bitcoin. Indeed, the very fact that these assets are finding takers means that there is too much money floating around and the wealthy are looking for all possible avenues to park this money.
In the US, the most inflated prices seem to be in smaller pockets of the markets than they were back then. But one should not be deluded into thinking that consequently there is less risk. Indeed, a series of small bubbles bursting as opposed to a big one can also cause a lot of pain. And as evident from the 2008 crisis, so interconnected are the global markets that toxic assets in one region can erode the value of good assets elsewhere. This is because investors will choose to sell the good assets and raise cash to mitigate losses. The adverse impact of the central banks' easy money policy has been reflected in the global stock markets as well. Most of the markets have soared even though the underlying fundamentals remain weak.
Frothiness has become apparent in the IPO market as well. According to Moneynews, 199 US companies have gone public in the year so far. This is the highest number since 2007. The gains for some of them including Twitter have been big even when the financials have been quite poor. All of this only reinforces the point that liquidity is the single biggest factor driving the rally in the indices and other asset classes.
The US Fed, in the meanwhile, is contemplating easing from its bond buying program in 2014. That seems highly unlikely given that the only possible outcome of such a move will be a resounding crash across global financial markets.
A lot of this money has come into India as well. Indeed, despite the Indian economy slowing down, the rally in the Indian indices in the past few months has largely been the result of liquidity. In such a scenario, it would make sense for investors to take stock of the situation and not invest in asset classes simply because of a sense of immense optimism. And as long as central banks continue to print money, which seems quite likely, it also makes sense to include some gold as part of one's investment portfolio as a hedge against future risks.
Do you think that growing investments in paintings, racehorses etc. are signs that bubbles are forming everywhere? Let me know your comments
Since then, the only response of the policymakers has been to do more of the same. They have again resorted to loose monetary policies and massive money printing. Rather than bolstering growth and job prospects, all it has done is concentrate wealth in the hands of few people. As reported in Moneynews, with so much money sloshing around, most of it is finding its way into rather unusual places such as rare paintings, gemstones, racehorses and the digital currency bitcoin. Indeed, the very fact that these assets are finding takers means that there is too much money floating around and the wealthy are looking for all possible avenues to park this money.
In the US, the most inflated prices seem to be in smaller pockets of the markets than they were back then. But one should not be deluded into thinking that consequently there is less risk. Indeed, a series of small bubbles bursting as opposed to a big one can also cause a lot of pain. And as evident from the 2008 crisis, so interconnected are the global markets that toxic assets in one region can erode the value of good assets elsewhere. This is because investors will choose to sell the good assets and raise cash to mitigate losses. The adverse impact of the central banks' easy money policy has been reflected in the global stock markets as well. Most of the markets have soared even though the underlying fundamentals remain weak.
Frothiness has become apparent in the IPO market as well. According to Moneynews, 199 US companies have gone public in the year so far. This is the highest number since 2007. The gains for some of them including Twitter have been big even when the financials have been quite poor. All of this only reinforces the point that liquidity is the single biggest factor driving the rally in the indices and other asset classes.
The US Fed, in the meanwhile, is contemplating easing from its bond buying program in 2014. That seems highly unlikely given that the only possible outcome of such a move will be a resounding crash across global financial markets.
A lot of this money has come into India as well. Indeed, despite the Indian economy slowing down, the rally in the Indian indices in the past few months has largely been the result of liquidity. In such a scenario, it would make sense for investors to take stock of the situation and not invest in asset classes simply because of a sense of immense optimism. And as long as central banks continue to print money, which seems quite likely, it also makes sense to include some gold as part of one's investment portfolio as a hedge against future risks.
Do you think that growing investments in paintings, racehorses etc. are signs that bubbles are forming everywhere? Let me know your comments
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