Short view By Philip Coggan - Financial Times
Short view By Philip Coggan
Published: June 8 2006 03:00 | Last updated: June 8 2006 03:00. Copyright by The Financial Times
The bears are becoming more strident as the market jitters continue. Andy Xie of Morgan Stanley says: "The four-year global growth boom and three-year bull market may be over. Global financial markets look suspiciously like a pyramid game."
Meanwhile, David Goldman of Cantor Fitzgerald worries that the Federal Reserve and the European Central Bank have become sources of risk for the markets. The rise in inflation breakeven rates (derived from bond markets) has been driven by oil and gold prices. He believes these factors are geopolitical, not economic.
"To attack this problem with monetary policy is like using chemotherapy for strep throat," Mr Goldman says. "It won't solve the problem but it will weaken the immune system and make matters worse. We remain negative on credit markets and reiterate our concern on financials."
He also worries that there is a shift in global foreign exchange reserves away from the dollar, perhaps driven by events in the Middle East.
Mr Xie believes that investors have been chasing high returns in commodities and emerging markets and have been using leverage to do so. However, this has become more difficult in a tightening liquidity environment.
He says that the gap between short-term money growth and the nominal gross domestic product growth rate in the G3 countries (the US, Japan and Germany) has declined from 13 percentage points in 2002 to about 2 percentage points today. There is less spare money to go into markets.
Mr Xie is also worried about inflation. "When the consensus embraces the view that global inflation is reverting back to the level of 1996 and that the unusually low inflation rate in the past decade is an aberration, asset prices could be re-priced significantly," he says.
That these worries are so diffuse may be seen as a good sign by the bulls, who view depressed investor sentiment as a key buying signal. But it may also indicate a reaction to the excessively buoyant attitude of investors in the first part of the year, when they were piling into risky assets. Historically, such periods of exuberance have preceded a setback.
Published: June 8 2006 03:00 | Last updated: June 8 2006 03:00. Copyright by The Financial Times
The bears are becoming more strident as the market jitters continue. Andy Xie of Morgan Stanley says: "The four-year global growth boom and three-year bull market may be over. Global financial markets look suspiciously like a pyramid game."
Meanwhile, David Goldman of Cantor Fitzgerald worries that the Federal Reserve and the European Central Bank have become sources of risk for the markets. The rise in inflation breakeven rates (derived from bond markets) has been driven by oil and gold prices. He believes these factors are geopolitical, not economic.
"To attack this problem with monetary policy is like using chemotherapy for strep throat," Mr Goldman says. "It won't solve the problem but it will weaken the immune system and make matters worse. We remain negative on credit markets and reiterate our concern on financials."
He also worries that there is a shift in global foreign exchange reserves away from the dollar, perhaps driven by events in the Middle East.
Mr Xie believes that investors have been chasing high returns in commodities and emerging markets and have been using leverage to do so. However, this has become more difficult in a tightening liquidity environment.
He says that the gap between short-term money growth and the nominal gross domestic product growth rate in the G3 countries (the US, Japan and Germany) has declined from 13 percentage points in 2002 to about 2 percentage points today. There is less spare money to go into markets.
Mr Xie is also worried about inflation. "When the consensus embraces the view that global inflation is reverting back to the level of 1996 and that the unusually low inflation rate in the past decade is an aberration, asset prices could be re-priced significantly," he says.
That these worries are so diffuse may be seen as a good sign by the bulls, who view depressed investor sentiment as a key buying signal. But it may also indicate a reaction to the excessively buoyant attitude of investors in the first part of the year, when they were piling into risky assets. Historically, such periods of exuberance have preceded a setback.
posted by Carlos T Mock at 8:56 PM
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