Authored by Michael Hartnett of BofAML,
“I take it for granted, that those eat now who never ate before; And those who always ate, now eat the more.” Thomas de Quincey, Confessions of an English Opium-Eater
The opiate of investors has been central bank liquidity. The degree of stimulus in the past 5-6 years has been unprecedented:
- $12 trillion of financial asset purchases by the big 5 central banks
- 520 central bank rate cuts
- $33 trillion of fiscal and monetary stimulus according to the BIS (an amount equivalent to (46% of the world economy)
- The lowest US government bond yields in 220 years
- 50% (or $20tn) of global government bond market cap trading with a yield below 1%
The decline in global interest rates, aided by $1.4 trillion of inflows into bond funds, has caused asset prices to rise markedly. From the March 5th 2009 lows, global equity market cap more than doubled to its May high of $58 trillion (now $53trn) and $100 invested in US bonds and stocks is now worth $175.
Capitalists have rejoiced, although the workers have been notably less rewarded…
In our view the ultimate macro “pain trade” must be that Bernanke has not made a policy mistake but rather is “rotating” away from Wall Street to Main Street via interest rate expectations.