Posted by on March 16, 2017 7:15 am
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Categories: Asset price inflation Bond Business central bank Central Banks donald trump Economy Financial economics Financial market Inflation Macroeconomics Main Street Monetary Policy money Nationalism Peter Oppenheimer Quantitative Easing US Federal Reserve

It’s settled…

For politicians, the chart sums up the frustrations that have helped propel the populism that Brexiteers and Donald Trump rode to victory.

While wages would never show swings on par with the likes of high-yield bonds, Bloomberg notes that the chart above illustrates how well financial markets recovered from the 2007 to 2009 meltdowns. By contrast, consumer price inflation, incomes and other such gauges of the “real” economy have put in muted performances.

“We don’t know how effective QE has been because we don’t know what would have happened without it,” said Peter Oppenheimer, chief global equity strategist at Goldman in London.

Falling interest rates supported most financial assets, while for the economy “QE has been effective to prevent downside risk,” he said.

Economic growth and wage increases have disappointed in recent years, depressed by poor productivity gains and historically low labor-force participation — dynamics that lie outside the purview of central banks. Now that monetary policy makers are leaving the onus on governments to address growth, and contemplating the easing off of stimulus, the big question for investors is how resilient markets will be. For now, optimism prevails – everything from corporate-bond premiums to emerging-market bonds are flashing confidence.

But, as BofAML notes, perhaps it’s time for that to reverse…Economic Nationalism is back

Long Main Street, Short Wall Street

Electorates are voting for trade & immigration policies to boost wages on Main Street, not for central banks to support stock & bond prices on Wall Street.

Now, “the withdrawal of QE is sending a signal of confidence that central banks have in growth,” Goldman’s Oppenheimer said. “But undoubtedly we’ll get to a stage where rising inflation will push up bond yields to a level that will act as a damper on asset prices” across financial markets, he said.

And after yesterday’s rate-hike decision – in the face of declining real wages, weak retail sales, and collapsing GDP expectations – is there really doubt exactly who The Fed is working for…

Because there is really only one cohort benefitting from this…

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