Investors need to be capable of cognitive dissonance to prosper. But the scale of doublethink in the markets has gone too far.
Consider US Treasuries and UK gilts, both near record-low yields. A large part of their investment case is that Britain and America control their central banks, and so can print money if needed – making default purely voluntary. The argument against the bonds is identical: the dollar and sterling are being debased by their central banks. Read more
Stocks have never been so correlated. The specifics of each company’s profit and loss account have become secondary to the broader factors of the market.
The figures demonstrate this beyond argument. In October last year, for example, the one-month correlation between individual S&P 500 stocks reached 90 per cent. The average since 1990 has been 30 per cent. Similarly, the correlation of different geographical indices has increased steadily. Twenty years ago, emerging markets offered great diversification from the developed world, with a correlation of almost zero. Now, that correlation is close to 80 per cent, according to MSCI indices. Read more
Was Keynes a Keynesian? I had to answer this essay question at university and managed to answer No. The issue was whether John Maynard Keynes’ 1930s ideas really entailed the interventionist policies that bore his name, and which rightly took much blame for 1970s stagflation.
Since then, an era of distinctly non-Keynesian economics by any definition has culminated in a global crash, leaving the world in what looks like what Keynes called a “liquidity trap” – where lower interest rates have little or no effect. In a week when the European Central Bank, the People’s Bank of China and the Bank of England have all eased monetary policy, the debate about Keynes’ legacy rages. It is barely a debate at all – a sterile recitation by each side of a preconceived position. Read more