Three Horsemen and the Ghostbusters: Morgan Stanley
by Andy Xie/ Morgan Stanley Financial markets have a tight consensus on goldilocks: Investors now have a powerful consensus on the continuation of the goldilocks scenario – low inflation, low interest rates, ample liquidity and strong growth. Under this scenario, investors expect Asia and commodities to outperform.
Three expectations drive financial markets: Expectations of Chinese revaluation, a Japanese growth boom, and ever-rising commodity prices are the three horsemen driving asset prices today. I believe all three are based on faulty logic and are simply expectation bubbles in a liquidity boom.
The current speculative cycle should end with inflation, deflation, or a shock: The current cycle is led by financial markets, which have pushed down risk premiums, and is likely to end with trends or events that trigger the risk reduction trade and rising risk premiums. Surging oil prices, overcapacity, or a random shock could trigger the trade, in my view Click here for the complete article
