Danielle’s segment starts at 43:33 on the play bar and runs just over an hour.
Danielle was a guest with Jim Goddard on This Week in Money, talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.
Just as junk food fills a near-term hole but undermines health, so too are easy money policies.
Ruchir Sharma, chief global strategist at investment dealer Morgan Stanley (itself a huge beneficiary of regulatory largesse and financial bailouts over the past twenty years) penned a lucid op-ed in The Financial Times this week, “Dear Joe Biden: Deficits Still Matter.”
While some insist debt levels don’t matter so long as interest rates remain low, Sharma correctly points out that we are already paying a massive price for ‘easy money’ in the form of lost productivity, incessant bailouts, increased government involvement in the economy, massive wealth disparity and zombie companies:
Instead of a path to freedom, low rates are a trap. They encourage more borrowing and rising debt, which drags productivity lower and slows growth. That makes the economy financially fragile, forcing central banks to keep rates low. Given today’s very high levels of debt, only a small increase in interest rates would make the debt burden unsustainable.
…and much of it has stoked a different kind of inflation — asset price inflation. Since the 1970s, the size of financial markets has exploded from about the same size as the global economy to four times the size.
…recent studies show that easy government money has ended up supporting the least productive companies, including heavily indebted “zombies” that would otherwise fail. The support also favours monopolies that have expanded not because of their innovation but by lobbying governments for favours and sidelining smaller rivals. The OECD warned, in a 2017 study linking falling productivity to easy money, that these trends will make it harder for societies to deliver “on their promises to current and future generations.”
Sharma offered some highlights in a CNBC segment this week:
Ruchir Sharma, chief global strategist and head of emerging markets with Morgan Stanley Investment Management, joined “Squawk Box” on Thursday to discuss his latest piece for the Financial Times called “Dear Joe Biden: Deficits Still Matter.” Here is a direct video link.
For those who are mandated to always be in equities (like pensions and long always funds) emerging market stocks are less extremely valued than developed markets and could drop less than when the present global bubble pops. But a loss of maybe 30% versus 50%+ is still a huge setback.
With the risk-trade massively correlated worldwide on the way up, stocks, corporate debt, commodities and most currencies typically slide together on the way down. What diversity benefit?
For those who don’t have to helplessly buy and hold overvalued securities–most individuals–cash, North American government bonds and the US dollar offer rare, liquid, safe havens to wait for attractive investment opportunities once other assets go on liquidation sale. Yes, we can be financially self-disciplined and use bubbles to our individual benefit. Will you?
Famed investor Jeremy Grantham on Thursday reiterated his warning that Wall Street is in a bubble as individual traders get “carried away.”
“They’re becoming euphoric … They’re borrowing money. They’re trading more shares,” Grantham, co-founder and chief investment strategist at Grantham, Mayo, & van Otterloo told CNBC’s “Squawk Box Asia” on Thursday.
In recent months, Grantham has warned that the massive runs on Wall Street are turning into an “epic bubble.” On Thursday, Grantham pointed to the number of over-the-counter shares traded since last February rocketing to 280 million shares in November and quadrupling to 1.15 trillion shares in December. Here is a direct video link.
