Bears beware. A monetary revolution is underway.
The US, Japan, Britain, as well as the Swiss, Scandies, and a string of states around the world, are actively driving down their currencies or imposing caps.
They are tearing up the script, embracing the new creed of nominal GDP targeting (NGDP), a licence for yet more radical action.
The side-effects of this currency warfare -- or "beggar-thy-neighbour’ policy as it was known in the 1930s -- is an escalating leakage of monetary stimulus into the global system.
So don’t fight the Fed, and never fight the world’s central banks on multiple fronts.
Stock markets have already sensed this, up to a point, lifting Tokyo’s Nikkei by 23pc and Wall Street by 10pc since June.
The New Year ritual of predictions is a time for bravado, so let me hazzard that the S&P 500 index of stocks will break through its all time high of 1565 in early 2013 -- mindful though I am of flagging volume and a wicked 12-year triple top.
The Shanghai Composite will continue its explosive rally as China loosens the spigot again. The Politburo is reverting to its bad old ways of easy credit for state behemoths, and an infrastructure blitz, with $60bn of fiscal stimulus as well for good measure. Reform can wait.
Yes, we all know that China has added $14 trillion in extra credit since 2009, equal to the entire US banking system. It is trouble waiting to happen. But trouble can be deferred.
The more that investors come to think another cycle of global growth is safely under way, the riskier it will be to hold corporate bonds, $8 trillion in the US alone. With yields priced for deflation, that bubble is dangerous to own on 10-year maturities
(Excerpt) Read more at telegraph.co.uk ...
