As the major central banks are slowly retreating from their policy of asset purchases, we will probably witness some of the side effects of this withdrawal.
Warren Buffett famously said that “Only when the tide goes out do you discover who’s been swimming naked.” The tide is going out only slowly, but we are beginning to see, at least in the UK, the damage the ultra loose monetary policy has done.
What a spectacular lesson the first half of the year delivered for investors. At the beginning of the year, it looked like the UK’s vote to leave the European Union was a great idea: the eurozone seemed on the brink of disintegration.
The European Central Bank (ECB) will find itself the only game in town soon. It is the only major central bank still buying bonds hand over first, and therefore it is dictating the pace for private investors.
Beyond the depressing, backward-looking policies that the Brexit vote and the election of Donald Trump as US president seem to have brought, there is a ray of hope.
People elsewhere in Europe, seeing the first ugly consequences of populism, might find enough motivation to go to the polls in elections just to try to keep populists out of government. I am talking about the decent people who are tired of politicians but aren’t seduced by the populists’ siren calls.
This is going to be a crucial year for the European Union. There are more and more voices predicting its disintegration. With the political events that are ahead, it’s not a possibility that should be taken lightly.
Politics are back in play in most of Europe, and this doesn’t bode well for central bankers. Even the almighty European Central Bank had a moment of weakness last week, when it broadcast a message so complicated to markets that it should not be surprised it fell wide of the mark.
As investors ponder whether to “sell in May and go away,” strategists say we’ll either see a “summer of stocks,” or a “summer of shocks.”
If anyone was looking for more proof of how central banks’ actions are distorting the markets, here it is: investors are trying to “front-run” the European Central Bank (ECB) – in the words of analysts at Bank of America Merrill Lynch — by buying investment grade bonds.
The European Central Bank helped credit as an asset class, and of course corporate bonds within it, become attractive to investors again.
By Sourajit Aiyer
This article was originally published by Huffington Post India.
Gartner, the IT consulting major, said at a recent conference that a digital disruption to business occurs approximately every three years, while talk at the World Economic Forum on the 4th Industrial Revolution also focused on similar lines.
This is why it’s time to take a look at how these factors may change the way we look at, and measure, our businesses, whether as an owner or as an employee.