France’s Macron became a lame duck President this year. The Tory Party was dumped out of office at the UK general election in favour of a party of relatively inexperienced micro-focussed policymakers who have witnessed a remarkably short electoral honeymoon.
As with the other markets, Japanese equities reacted immediately to Donald Trump's US presidential election win. The immediate election impact is expected to fade relatively quickly, with market focus turning to the trade policies Trump may pursue upon his return to the White House.
A few weeks ago, we began experimenting with the hypothesis that households – and even some governments – were starting to reassess their long-term income expectations. Years of weak productivity growth, concerns over economic efficiency, the cost of living, the climate and troublesome geopolitics are all likely weighing on confidence in the future, along with the seemingly changed outlook for interest rates.
The US and most other authorities’ reaction to the Global Pandemic was to flood the financial system with cash, principally via the act of central banks buying government bonds. The sums involved were massive, in part because the authorities understandably did not know “just how bad the crisis would be” but also because there was a need in March 2020 to ensure that some financial institutions that were “the wrong side” of the bond market did not perish.
In the days immediately following 9-11, markets understandably fretted that consumer spending would collapse as people would be too scared to go out. In fact, spending picked up – even the author’s usually frugal spending increased.
This may appear an odd question to ask given the recent slew of poor inflation data points that have been released but we suspect that “all is not quite as it seems” within bond markets, or even the global economy. First, the inflation story.
Major “events” in markets have been caused by wrong assumptions over mathematical relationships. The Long Term Capital Management Debacle (LTCMD) in 1998 was primarily the result of the incorrect assumption of perfect markets by a cluster of Nobel Laureates. The naïve and wrong assumptions over correlations proved to be the spectacular undoing of the mortgage markets in 2007-8.