Markets have become completely detached from economic reality – and it's going to get ugly [View all]

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Bubblenomics is back. Markets have become completely detached from economic reality – and it's going to get ugly

By Philip Aldrick Economics
Last updated: May 21st, 2013


Stock markets are at dotcom highs – that goes for the FTSE 250 domestic index as much as the FTSE 100 global one. House prices are rising. Yields on “junk” bonds are at record lows. Dangerous “covenant-lite” lending is enjoying a renaissance, just four years after being declared extinct.

Markets are convinced interest rates will remain at 0.5pc until late 2016, even though the economy is forecast to be growing at annual rate of 2pc by the back end of next year.

And a single month’s surprise fall in inflation sends sterling tumbling by a cent against the dollar, on expectations that the central bank will load up the printing presses once again.

None of it makes any sense, but it is the current juncture. Short-term financial hedonism has replaced rational long-term decision making. Persistently low rates are now the markets’ status quo, and traders can only see evidence of more quantitative easing in the runes. ...........................(more)

The complete piece is at: http://blogs.telegraph.co.uk/finance/philipaldrick/100024624/bubblenomics-is-back-markets-have-become-completely-detached-from-economic-reality-and-its-going-to-get-ugly/