Satyajit Das: The market is too optimistic
Optimists think all is well in the wider economy. Author Satyajit Das is not so sure.
Satyajit Das, author of Traders, Guns and Money and A Banquet of Consequences, is worried about the financial system. Optimists argue that "economic prospects are sound, with globally synchronised growth, low inflation, strong labour markets and buoyant asset prices". But this ignores "low labour-force participation rates, low wage growth, limited productivity growth, weak capital investment and continued imbalances in global trade and savings". They are also too relaxed about "fiscal deficits, accommodative monetary policy and perpetually increasing debt".
Still, Das wouldn't short the market immediately as "a major fall in asset prices or a substantial slowdown in economic activity is unlikely to be tolerated". Instead, "policymakers will reduce interest rates (potentially into deep negative territory), resume asset purchases and increase government spending to preserve the status quo". Central bankers are still intervening heavily the Bank of Japan "now owns about 75% of all listed Japanese exchange-traded funds and is a top 10% shareholder in 90% of Japan's listed equities". Similarly, "the Swiss National Bank has become a major shareholder in many US companies".
But in the long run, "higher asset values are neither permanent nor sustainable". Central-bank intervention "distorts capital allocation" as "low interest rates allow zombie companies to survive, delaying bankruptcy and preventing capital from being redeployed". This "stable instability" cannot last forever. "It will end, as always, in a Torschlusspanik moment a German word for last minute, or literally door-shut-panic' as investors try desperately to exit when they fear that stable instability is tipping over into simple instability."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
Zoopla: House prices slows to 1.4% in May as rate of sales at four year high
The average UK property now costs £268,400, Zoopla says, but some areas of the country are experiencing much higher price growth than others.
-
FCA reveals 'once in a generation' advice changes - what the reforms mean for you
Consumers to get free access to financial advice type help for pensions and investment following proposed changes from the regulator