Tags: Morrissey | investors | easing | central bank

Money Manager Morrissey: Investors Overly Dependent on Central Bank Easing

By    |   Tuesday, 23 December 2014 11:48 AM

Financial markets have ignored plenty of bad news, such as China's economic slowdown and Russia's economic turmoil, in their inexorable rise during the past six months, notes Helena Morrissey, CEO of Newton Investment.

Both the S&P 500 index and Dow Jones Industrial Average hit record highs Tuesday.

"It’s not that market participants are oblivious to the real-life implications of the global geopolitical and economic maelstrom in which we find ourselves," she writes in The Telegraph.

"Instead, investors are extrapolating the past six years, a time when the biggest monetary policy experiment of all time has fueled a complacent belief in the ability of central banks to do whatever it takes to underpin asset prices."

Morrissey says "mind-boggling" amounts of quantitative easing have created money "out of thin air to buy financial assets." Investors "quickly became addicted to the money creation drug."

"This massive central bank credit has in turn fueled dramatic asset price inflation, with the combined valuation of world equity markets (before the very recent jitters) reaching almost $75 trillion — a not-entirely coincidental threefold increase from the March 2009 low of $25  trillion."

The implications are ominous, she predicts. "The markets are artificially inflated. But counting on market participants to continue to subscribe to the belief that central bank liquidity can overcome all other challenges is risky business."

David Tepper, founder of Appaloosa Management, is concerned that markets may turn overvalued next year, which is starting to look like 1999, he tells CNBC. Stocks reached a peak that year before tumbling in early 2000, he notes.

"This year rhymes with 1998. Russia goes bad, easing coming from Europe. Sets up 1999 . . . [oops] I mean 2015."

Tepper says he's not predicting that the markets will top out in 2015. But "you have to be aware of the possibility for some sort of overvaluation of the markets. And they are fair value now."

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Financial markets have ignored plenty of bad news, such as China's economic slowdown and Russia's economic turmoil, in their inexorable rise during the past six months, notes Helena Morrissey, CEO of Newton Investment.
Morrissey, investors, easing, central bank
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2014-48-23
Tuesday, 23 December 2014 11:48 AM
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