Alex's Blog

A grim global outlook but make hay while the sun shines…

The value of investments and the income they produce can fall as well as rise.

There is a lot to be confused about for anyone trying to understand the global economy these days, and we do live in a global economy. We live in times where things like Quantitative Easing (QE) happen on a regular basis but the long term effects of it are not understood.

To cut a long story short: As long as the Fed, ECB, BoE, etc. continue to print money, buy bonds on a massive scale and provide cheap financing to banks, markets will continue to remain relatively buoyant, but ..

.. the global market is systemically sick, reliant on cheap credit and liquidity stimuli. The reality is that the global economy only narrowly escaped what would have been one of the worst recessions in history and we aren’t out of the woods yet ..

Each time QE is used it becomes less and less effective. A good metaphor for the market and QE is that of a drug addict and the drug respectively; The drug addict being the market and the drug being QE. For so long as the drug addict is high he will function (markets rally) but if he doesn’t get his fix he will collapse, possibly die or at least become very sick (market crash). Not only this but each time the drug is used (QE) it becomes less and less effective until it is no longer effective … this is the time when markets could crash and when we might be subject to a 1920s style or worse depression.

Global Banks have billions of dollars of worthless ‘assets’ on their balance sheets, if they wish to sell them or insure them against loss where do the assets end up..? The answer mostly is, on Government balance sheets paid for by taxpayers like you and I. Who then will bail out Governments when they fail… Italy, Ireland, Greece, Spain, Portugal, Cyprus, etc. Germany has so far propped up the European economy so far but for how long?

So, ‘a grim global outlook but make hay while the sun shines’..

I say this because there is also an opportunity to take advantage of predictable market conditions whilst QE continues to work, be quick on your feet, accept the risks and make the most of these up and down trends but knowing that we are quite possibly in another very large bubble and bubbles burst…. eventually.

A CA grim global outlook but make hay while the sun shines…