The One Chart That Says it All
Sometimes one of the best ways to understand what is happening in certain markets is to look at a chart. Well, the chart posted in the link to the article below gives a good picture of how the broader stock markets are out of sync with global growth.
As the chart illustrates the MSCI world stock index has continued to rise while growth for 2013 and 2014 has lagged. So, how is it that stocks have soared in the face of a weak economic recovery? One of the potential answers, outlined by Marc Faber in the video interview below, is that not all prices rise equally.
Chart from: Zerohedge
When Central Banks print money it is very difficult to predict what assets classes will be the biggest beneficiaries. Over the last couple of years money has flooded into stocks, art and in some markets real-estate.
However, Central Banks will not be able to keep prices artificially elevated for a sustained period. As Mr. Faber says, money will move out of inflated assets into markets that are undervalued like Gold and Silver.
It is possible that stocks could continue to march higher and for Gold too trade lower. However, the likely outcome over the next year or two is that this trend will shift. Gold will be recognized for it’s value in an uncertain economy and many stocks will loose their appeal because of perceived risk.
The Risk on Trade Will Soon Reverse
In an environment where banks are given access to free money by the Central Banks it draws the analogy of going to a casino and betting with someone else's money. With global growth now a concern, the effectiveness of the low interest rate policies of the last few years are coming into question.
In a recent article on ZeroHedge TradingFloor.com's Steen Jakobsen, CIO & Chief Economist Saxobank, said “There is growing belief that the “narrative of the central banks” is failing.
What is likely starting to happen is that Central Banks and the IMF have absolutely no idea what to do next. As a result markets will become more volatile in the near future as investors react to uncertainty.
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