Macroscope | Stoned like an addict in an ocean of cheap money and debt
China’s debt has quadrupled since 2007 to 217 per cent GDP...with much lent by shadow-banking on real estate, infrastructure and wealth management products
We have managed to get through the shark tank of the month of October this year with nary a scratch – a month that often sees Black days, as the markets sell off to excise the excesses of the past.
November is altogether a relaxed month, one in which markets traditionally settle; even recover, as leads into the calmness of December and the closing of the books. November can provide news and entertainment but it does not normally provide market leadership.
This November it is different, in that the market has none of the typical excesses of September and October to correct. Remarkably, the MSCI World equity index is trading at almost exactly the same as it was when it began the year. We have had some fun in the meantime. The index rose 6 per cent by May, only to fall 9 per cent by the end of September, and then to recover in just five weeks.
The dirty secret is that the debt problem is like a great white shark lurking just under the water
Nevertheless, the record books show virtually no gain for equity investors this year.
It continues to be hair-pullingly frustrating for equity investors, unless you are a trader who can work out badly or well. Hedge funds who fancy themselves at the volatility game are actually down 2.5 per cent this year, below their stock market cousins. And for most investors, leaving cash in the bank is an admission of failure.
One mantra of investment is that there is always someone doing better than you are. Property for instance has had a fine year with Centaline’s Hong Kong house price index up the best part of 10 per cent. Greater London house prices are up 10 per cent this year and prices were up nearly 9 per cent in Sydney in the second quarter alone.
Soaring property markets may be one inflating bubble but it is not the biggest or most worrying one. It is the bond market, generally regarded as one of the safest of the risk asset classes, which is well and truly at the top - even though predictions of its demise have confounded experts for half a decade.