The global economy is enjoying unprecedented growth - the US has now 60 quarters of uninterrupted growth - its best ever performance. And as for the UK stock market? The average price to earnings ratio of a UK stock is now 12. That’s the lowest level since 1991.
There’s plenty of money out there. It’s just that it is sitting in the vaults of the central banks of the developing world and Japan. It seems reasonable to assume sooner or later this money will find its way into shares, boosting equities at the expense of bonds.
Then there’s the UK. Just when she needs to see an end to the rising rate of interest, signs emerge that Bank of England may have gotten away with it.
UK inflation in July fell to 1.9 per cent from 2.4 per cent in June and average pay was up by just 3.3 per cent in the 12 months to June
Yet, while the Fed and ECB make all kinds of noises, the Bank of England is noticeable only by its silence.
Just before the crisis hit, its latest inflation report suggested interest rates would need to go up once more, but it had changed its mind before. Back in 1998, the Bank of England warned inflation risks were on the upside, then the Long Term Capital Management crisis occurred, and the Bank lowered rates.
One would assume that if the fundamental problem creating inflation pressures was too much credit, then a credit squeeze will take the heat off.
It really does seem to depend on China et al. What will China do with all its reserves?
It’s still quite possible that August shenanigans were no more than an annual summer time hiccup. There’s wisdom in that adage “sell in May, and go away.”
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