For 30 years, the market trend has been the same. It is only recently that the interest rates have risen, and this, as predicted by some, could mean trouble.
The 1970s inflation was a huge battle for everyone, but after this was fixed, bonds have adapted a somewhat stable return policy. This caught the interest of many investors. Recently, however, bonds have been caught in the middle of what could easily be a worldwide financial storm. This frenzy has received two kinds of responses. First, investors ran out of the unsafe ventures and poured all their assets into the German government bonds and such safe havens. It was so bad that shareholders had no problem welcoming negative returns- as long as they got most of their invested money back, they were fine with it.
Second, nations around the globe bought bonds from banks using newly printed money if they had to. This greatly increased money supply, hence reducing the stock of safe bonds around the world. Reduced stocks usually mean high prices, and in this case, it was no different.
It seems that the financial market is headed towards repeat of the 1970s. Inflation is dangerously rising worldwide. Since inflation is a killer of bonds, investors opt to sell all the bonds in their possession and buy shares instead. Stock markets have therefore sky rocketed while bond markets are continuously falling behind. But what does all this mean? It is certainly not a part of the cycle of economies. Market liquidity is in real danger, and a real market bloodbath, like the one of 1994, might be closer than we imagine. The worst part is that even if the US economy is supercharged by the new president, Trump, there still could be no way to avoid the impending financial crisis.
Finanzchefs stellen sich einer neuen Realität, wenn sie ihre Arbeitsweise ändern und ihre...