Asset prices are high across the board. Is it time to worry?
That's the cover story published by The Economist sent in the daily batch of news/information pieces from axios.com.
Where’s the beef?
Asset-price booms are a source of cheer, but also anxiety.
There are two immediate reasons to worry:
1. Markets have been steadily rising against a backdrop of extraordinarily loose monetary policy:
2. Signs are appearing that fund managers-desperate for higher yields-are becoming increasingly incurious
Beware of the bull > “this time is different”. It would be daft to assume that asset prices must remain high come what may. Many hazards could derail the economy and financial markets ...
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Not if but when the next recession comes, policymakers have less fiscal and monetary ammunition to fight it than they had in previous downturns. Prudence therefore suggests caution.
Bitter experience has shown that debt-funded assets can magnify losses, causing financial crises.
SPOILER ALERT: In the end, however, there may be no escape for investors from the low future returns and even losses that high asset prices imply. They and regulators should take a leaf out of “The Intelligent Investor”, and make sure that they have a margin of safety.
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