The rich, with their ownership of investment assets and ready access to cheap credit to gear up their holdings, have continued to be “the chief beneficiaries of… unorthodox monetary policies,” says the CLSA strategist Christopher Wood.
“In the world of equities, multiple expansion – not earnings [growth] – has been the chief driver of equity gains in America and Europe in recent years… Price-earnings ratio expansion contributed to an estimated 75 per cent of the gains in the US stock market last year and 43 per cent so far in 2014, and accounted for all the gains in Europe in both 2013” and the first half of 2014.
“Similarly, in the world of fixed-income, capital gains and related yield compression have been driven by the leverage employed in carry trades – leverage only available in a post-financial crisis world to the affluent.”
Wood argues that although the official rate of unemployment in the US has been falling, that gives a false impression of fundamental conditions in the labour market, as nearly all the improvement has come from people “leaving” the work-force by giving up looking for work. “More unemployed Americans leaving the work-force than found a job in 49 of the past 50 months.”
Here is On Target.
Enjoy this sweet spot while it lasts but be in no doubt that it will end.
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