And if you begin to see that those who are not working?
Thursday, 03 of December 2015
- Per BNY Mellon Investment Management
And if you begin to see that those who are not working? What would happen? This is one of the questions that are being asked more and more managers and investors. And those who come to make conclusions difficult to take. Aron Pataki, manager Newton, a subsidiary of BNY Mellon, is shown strong in his belief that the policy of quantitative easing (QE) serve more to boost growth of "virtual" wealth for sustainable economic recovery. "The verification of this could lead to a review of the value of risk assets and downgrading" he says. The main problem encountered by the team Newton Real Return is that "we have been living the illusion of a perpetual money machine where spending financed by debt continues to grow. The ultra low interest rates have encouraged market participants to accumulate more debt, which probably makes the generated unsustainable economic growth.
"The "debt" is one of the topics of investment through which Newton discusses the major changes affecting the world economy, as noted Pataki. He explains that the cheap money has reduced the volatility of prices and encouraged investors to reduce liquidity portfolios. It has also pushed investors towards riskier assets, hoping that by taking on more risk, it may be possible to achieve even greater profitability, says the manager. In this regard, remember that stock markets posted strong gains despite reduced earnings and ongoing disappointment with regard to global economic growth.
"Bad economic news can not remain permanently good news for investors in asset growth, even if it brings more stimulus policies," he says. "We believe that investors end up losing confidence in the ruling finding that the policy of quantitative easing, mostly, driving the growth of wealth that can be defined as virtual and do not lead to a sustainable economic recovery. This could cause a major overhaul the value of risky assets and downgrading. The failure of the Fed when it comes to normalize monetary policy after seven years of zero rates would be the obvious trigger that would make investors efficiency QE question and therefore, the credibility of central banks.
"For Pataki, the empirical evidence suggests that, in practice, the unorthodox monetary policy has a non-inflationary deflationary effect, as reflected in the continued decline in the velocity of circulation of Money and pricing power of firms in other words. the opposite of what is intended, "said Pataki. "It is also important to note that these policies are not without costs; negative unintended consequences often outweigh the short-term benefits."
"It's hard to know what the ultimate consequences of low interest rates will be, but you're likely to see its impact is amplified by an increase in leverage and dangerous mismatch between risk assets and the holders of these assets risk, "said Pataki. "This will cause volatility in unexpected places. If economic activity continues to fall, defaults probably go back up. And in a distorted by central bank policy environment, in which investment banks hold less risk, liquidity could be the key factor over bank solvency (as was the case in 2008), "says the expert.