The Middle Aged Bull Market

by Marilou Moursund on March 25, 2014

in Credit Crisis,equity market,Foreign Markets,Geopolitical

As the market continues to churn around these levels, the key question is whether or not the economy is going to limp along or continue to improve. The bad winter weather certainly contributed to some weakness at home, and there are also problems with the recovery abroad. This column by Kopin Tan in this week’s Barron’s has a good summary of the issues facing the global economy. From the linked article: The forecasts call for a synchronized global recovery, at last, and yet global markets’ recent rudderless churning makes it increasingly clear that 2014 really is shaping up to be a year of transitions. For some time, Earth was more or less unified by the urgent task of fending off financial catastrophe. Massive central-bank liquidity had let private companies

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and households in developed countries repair their balance sheets, and boosted emerging economies. But what happens as this bull market enters middle age? A maturing global expansion now faces several key transitions. Europe must shift from financial fragmentation to a tenable fiscal union, and investors are already betting that European Central Bank President Mario Draghi will succeed in doing whatever it takes. Greek government bonds have jumped 86% over the past year, and Greek stocks, 52%. Yields on 10-year government bonds are plumbing 200-year lows in Spain, and in Italy they’re approaching depths not seen since the end of World War II. “Capital ruthlessly gravitates to wherever easy money and tough reform is enacted,” notes Michael Hartnett, Bank of America Merrill Lynch’s chief investment strategist. But even he is watching for an overshoot of bond prices in Europe’s periphery. Japan is veering from deflation to inflation, while China is steering from leverage and investment toward consumer spending and a more balanced, sustainable expansion. But Chinese growth is no longer robust enough to stave off defaults, or weak enough to warrant central-bank help. And all signs—Chinese stocks slumping at about eight times 2014 profits, last week’s record exodus from Chinese exchange-traded funds, copper at 52-week lows, and a 21st straight week of outflows from emerging-market stock funds—all suggest that investors believe China’s rebalancing will prove protracted and precarious.

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