FNArena’s Weekly Insights – November 25 2019

As another calendar year is drawing to its natural end, time has arrived to once again reflect upon what might have been and what has actually transpired since the world was staring into the abyss this time last year. If not now then when, n’est-ce pas?

Last year an overconfident Federal Reserve, alongside other central bankers around the world, thought it had successfully manufactured an escape from the economic straight jacket that has kept economies into a slower-for-longer framework post GFC, with occasional bouts of threatening mini-crises along the way.

It looks like a strange aberration today, but the Fed actually thought it could continue hiking interest rates while also running down the size of its balance sheet and the world would never notice a difference. Odd.

Maybe the most apt description is the one I have been using in my on-stage presentations to investors throughout years gone by: in theory there is no difference between economic theory and practice, yet in practice there is.

Luckily, for all of us who participate in financial markets, central bankers quickly realised the error in their plans and policies and swiftly reversed into providing further support through abundant liquidity. More than 20% in equity markets return later, here we now are, still dependent on excess liquidity sloshing through the global financial system.

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