The global stockmarkets continue to surge despite the weak economic climate. Both the S&P 500 and FTSE 100 have continued to reach all time highs over the past couple of months. Is this the beginning of an economic recovery? We think not. In fact we do not anticipate a recovery in 2013.
Marios Nikolakogolou, an experienced city trader quotes “The stockmarket has reach record highs in 2013, but where is the euphoria?”. The statement sums up the startling reality of the current economic environment. In the past the stockmarket would reach a new high and would be met with jubilation from traders in the city. The current surge in the stock market is different in that s is backed by monetary easing and excessive money printing from the Central Banks. The funds are filtering into the stockmarket but do not appear to be filtering down to the people on the street.
Quite simply the easy money is being filtered into the banks in order to shore up their balance sheets and the funds are in turn being reinvested into the stockmarket. This, combined with near zero interest rates means that investors are no longer able to generate a reasonable return on their assets. Leaving excess funds in the bank or investing in bonds will not generate sufficient interest to keep up with inflation. Equities have therefore been regarded as the new “safe haven” as they continue to offer a return on investment together with an element of protection against inflation.