Currently I am invested 60% cash, 40% emerging markets. After the London blasts, markets have moved up approx 2%. Does this point to resilience, or is this the final 10% of a bull market that I shouldn't try to catch? YTD, I am up 3.65%, vs flat for S&P.
What are the reasons I have seen for low interest rates in the US, and other places? Here is a list:
a) China, Japan, Korea et al buying US treasuries. But then why is EU debt yield so low? Somebody is clearly buying EU treasuries too
b) Better cross-border movement of capital has removed ineffeciencies, lowering cost of debt worldwide
c) Increased integration of India and China would keep wage growth and cost of producing goods low worldwide, leading to lower inflation worldwide (and hence lower bond yields)
d) Depression is an offing - this is a classic case of yield curve inversion.
I think it is fair to say that when yield curve gets flatter, retail banks get killed (they borrow on short end of the curve, and lend on long, and make money on the carry trade). To avoid getting killed, they should curail lending, which due to the money multiplier effect would be negative for economic growth. But if the game is on for grabbing market share, the banks might not curtail lending even if it hurts immediate profits.
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