Asset prices rise in the face of weakening global outlook

Vapid volumes courtesy of Algo traders surfing on central bank liquidity have driven most asset prices higher over the past two months. These price gains fly in the face of a weakening global economic outlook as forecasters slowly cut their previously optimistic projections for 2012 and 2013 global growth.  Today Pimco lowered its global growth forecast for 2013 to 1.3 percent to 1.8 percent from about 2 percent pointing out that the private sector isn’t healthy enough to step in and extend credit amid deleveraging and that Central banks are gradually losing effectiveness in helping the real economy, while the low growth rate of corporate profits and the low rate of investment means a near stall speed of the global economy in the months ahead.

In advanced economies, yields on both investment grade and sub-investment grade corporate bonds have fallen to their lowest levels since before the 2008 financial crisis. The same is true of yields on emerging market bonds, whether issued by sovereigns or corporates, denominated in local or international currencies. Yields on bonds backed by mortgages and other collateral have fallen to their lowest levels ever. Meanwhile, equity markets mostly rose. Both asset classes have benefited from more loosening of monetary policies and a consensus perception that major near-term downside risks to the world economy have magically diminished. As one after another commentator throws caution to the wind, I can’t help but remember that time old adage that when all of the experts agree, something else is bound to happen. These charts courtesy of the Bank for International Settlements capture the price risk in current stock and bond prices.

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4 Responses to Asset prices rise in the face of weakening global outlook

  1. michael says:

    “Lies, dambed lies and statistics”….Mark Twain

    Systemic corruption esclating, out of control, showing no sign of moderation.
    Reckless and mad we are victims of our own greed and stupidity destined to destroy our needs in pursuit of our wants.

  2. Robert Lynn says:

    With the 47% voting for their checks and Obama still out there giving campaign speeches buying votes there is not much hope that we are headed for a fall. The question is whether people will suffer a painful restructuring and emerge with a new work ethic and determination or whether people will follow Obama as he pushes for an extension to 4 years of unemployment benefits blaming Obama’s straw man targets. It is all caused by the growth in government and out of control spending as the above charts attest.

  3. William says:

    I even consider 1.3% growth to be VERY optimistic.

  4. Kenny Drapale says:

    What good is a work ethic when sub-prime MBS, off balance sheet accounting, endless derivitive instruments & government cronies are set up 2 steal it all? You can’t be serious! I work 42 & 1/2 hours a week. I can even be productive for my employer – So F’n what? Do the opposite – use Credit Unions & starve the beast! I can pretty well guarantee that your pensions in any form will be confiscated by taxes bank fraud & inflation under the present scenario, so I don’t need to be smug…I just want to keep pointing my finger @ the simple root of the problem rather than the disease or symptoms.

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