NEW YORK (Reuters) - General investment theory holds that investors should diversify, buying one asset class on expectations of profit as they avoid others on fears of a loss for any given set of economic circumstances.
But with gold at 18-month highs, U.S. stocks rising off recessionary lows and a rally in U.S. bonds sending yields on some debt to the lowest since July, the investment climate is anything but typical.
The worst global economic contraction in decades prompted low interest rates around the world and central banks, including the U.S. Federal Reserve, to take the extraordinary precaution of buying the debt of their own government in a bid to keep liquidity in the system.
But as economies recover, that liquidity has to find a home.
The big question is how long the atypical investment climate will remain. Much of that depends on when central banks end those extraordinary actions, known as quantitative easing (QE), and why they end it.
"Asset classes are up due to massive credit, fiscal, and monetary stimulation that is bleeding into them," said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago.
Spot gold is up 14 percent year to date, the benchmark Standard & Poor's 500 index is up 15.5 percent while the dollar index, the dollar against a basket of six currencies, is down 5.5 percent.
"Essentially, this bullish action in several markets may be a sign that the 109 percent year-over-year increase in the monetary base may finally start translating into money supply growth," said Mike O'Rourke, chief market strategist at BTIG, in a note to clients.
"As usual, the improvements appear in the financial markets first, and the real economy later."
The dramatic run-up in bond prices has occurred despite the dollar deteriorating, data showing further economic stabilization and Wall Street hovering at a one-year high.
0 comments:
Post a Comment