Technical & Fundamental Oil Reports Specialists

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The higher the climb the harder the fall?

Published Monday, March 23rd, 2015

The equity and bond markets left us in no doubt about their mood last week. Equities are seen as a good investment and so are bonds even at record highs for stock markets and record low yields for bonds. The mood is buoyant despite dire warnings from the OECD, the Bank of International Settlements, the IMF and an assortment of individual doomsters who warn of a car crash ahead.

The big question is whether investors feel positive because they see encouraging signs of growth or because they do not believe that interest rates will move up in the near future and may even fall further. Market behaviour suggests that the latter motivation dominates and that is what the OECD, BIS and IMF are worried about.

If it is easy money and very low interest rates that are driving valuations what happens when the music stops and interest rates begin to rise, led by the Federal Reserve. The answer is that everyone will head for the exits and, with the investment bank buffer removed, they are dangerously narrow. The first Federal Reserve interest rate rise, if it is seen as the beginning of a return to old norms, will trigger a mass exodus and a liquidity crisis in corporate and emerging market debt.

to read the rest of the report, please click here

Posted by David Hufton