World asset prices increasing in a depression?

Discussion in 'Finance, Property, Law' started by Flight, Dec 9, 2012.

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  1. Flight

    Flight LE Book Reviewer

  2. Flight,

    there is a view being touted around by some commentators that there are a whole load of derivative trades on Greek (and other) debt that aren't backed by anything real. The bwankers have sold a sort of insurance on the same debt multiple times, never expecting the chickens to come home to roost. With the troika kicking the debt can down the road, they have time to back off their exposure by buying equities, hence causing a mini bubble. If this is the case, the bubble will burst when the can cannot be kicked any more. Expect money to flow into US Government securities and other safe havens like gold and the Swiss Franc.

    An alternative view would be that the global economy is starting to pull out of the poo. Certainly the USA is posting better than expected growth. When the US economy is doing well, money flows out of US Government securities (which are seen as the safest haven in times of strife) into riskier investments such as stocks, which rise. Markets have a risk-on sentiment and equities are rising, but the major indices are nowhere near their highs for this year, let along pre GFC levels.

    A third view would be that markets are cyclical (they are) and that, with a little light at the end of the global economic tunnel, we are at the start of a cyclical bull run. Or it could just be a pre-Christmas rally.

    So not sure which currencies are close to being toilet. Certainly, US Quantitative Easing has damaged the dollar's intrinsic value, but it is still the world's reserve currency and money will flow into US bonds if it all goes pete again. The Euro is trading within cyclical range and needs to fall significantly to be anyway near the toilet. With the worlds 4th, 5th & 8th largest economies in the Euro, there are still strong fundamental reasons why the Euro will not be flushed away. The Japanese keep having to intervene to keep the Yen down, the Swiss franc carries on regardless as a global safe haven, leaving only the Pound of the majors.