Central banks have created again an ubuesque liquidity situation. The aim was to repress any feeling of fear, which is so essential to the sustainability of a system. It was a good call. As collateral damage though, it has also repressed everything else financial.
That’s probably what is normally bound to happen in a zero growth, zero-rate environment. As economic fundamentals are weak at best, the only kick you get for your buck is through debt issuance. By that, we mean a lot of debt. The world debt is now at $260tn or 322% of global GDP. It has increased by a whopping 40pts since the onset of the 2008 financial crisis. There is apparently no end to that.
Where is value creation? Reality is that leverage achieves very little. It artificially inflates asset prices without upgrading these assets meaningfully. Take debt-financed share buybacks as a case in point. As we know it builds an increasing disconnect between markets and fundamentals, between Wall St and Main St. Does it ring any bell?
We know what’s next. Not to sound like a broken record, the proceeds of asset bubbles go only one way. Those who have assets in the first place. To sound more optimistic though, there is this fantastic level playing field that we call startups. To us, this is the one place where proceeds of asset inflation most effectively translate into ideas and employment. Good that those are being noticed in the helicopter-money allocation by Central banks. They should even more.
360 Advisory – Markets