Analysts at Standard Chartered became the latest to caution over the potential effects of global quantitative easing on ‘real assets’ on Friday. In a note the bank’s FX team write:
The debasement of money through over supply, and by implication the value of financial assets in that currency, creates demand for monetary alternatives or “real assets.”
Many G10 central banks — now including the European Central Bank (ECB) — have now adopted variations of quantitative monetary easing to deal with their recessions. Given the level of output gaps, domestic consumer price inflation in these countries looks a distant prospect for the time being. However, asset market inflation, coupled with currency debasement is the immediate reaction function — and will remain the case until markets anticipate an exit strategy from this policy.
‘Real asset’ inflation being of the sort say we’re now seeing in equities, commodities and even house prices.
David Rosenberg of Gluskinis Sheff is among those finding things spookily familiar to the state of affairs in early 2008, suggesting everyone is back in the same trade again: buy stocks, buy commodities, buy non-Treasury bonds; buy gold again and of course sell Treasuries.
Related links:
Warning signals: QE rally might be over - FT Alphaville
Big news: apparently deficits are now officially a problem – FT Alphaville