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  • Welcome to Charts that Count.

  • And welcome, more importantly, to the everything rally.

  • The price of just about every financial asset is headed up,

  • and they are headed up in unison.

  • Let's take just a couple of examples.

  • Start with US stocks, which are right back up

  • against their all-time highs.

  • We'll look at junk bonds, which are enjoying a screaming rally.

  • Finally, consider commodities.

  • Gold and iron ore are jamming.

  • Even oil is rising, and the world

  • has too much of that stuff.

  • What is the explanation for all of

  • this synchronised exuberance?

  • The most popular theory has it that a powerful combination

  • of activism by the Federal Reserve and other central banks

  • and low growth expectations have driven real bond yields -

  • that is inflation-adjusted bond yields - down below zero.

  • This means, to simplify only slightly,

  • that borrowing costs are negligible.

  • Or, to put it another way, that money is free.

  • Under those conditions, no asset price can be too high.

  • After all, you can always borrow more free money

  • and pay a higher price.

  • Furthermore, the market has concluded

  • that real rates will be low or even negative

  • for a very long time.

  • Now, the market could be wrong about how long

  • these super low rates will be with us.

  • It could also be wrong about the relationship

  • between super low rates and other asset prices.

  • But what is especially worrisome right now,

  • is that in a downturn it used to be investors' best defence was

  • diversification.

  • Owning a mixed basket of different kinds of assets

  • meant that some asset you owned would always

  • be outperforming - at least relatively - at any given time.

  • But in the recent rally everything

  • has gone up together.

  • And the rally has been explained by a single simple factor,

  • low real rates.

  • If that theory is correct, when the downturn comes

  • there will be no place to hide.

Welcome to Charts that Count.

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B1 US FinancialTimes rally asset downturn price bond

Welcome to the everything rally Charts that Count

  • 37 1
    洪子雯 posted on 2020/08/14
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