WORRIED PARENT - As a father, I find myself doing a lot of worrying about my children, for good and for bad. This I suppose is what comes with the package and I am forever grateful for the blessing of having three beautiful children. Each child has there amazing strengths and each child has areas they need to understand a little more. This is the way it is with all of us. That is how we are all made. And as a father, I tend to worry most about these areas that need a little work, because I worry what life might be like down the road, if the children aren't able to get a handle on the challenges they face in these areas. I worry that if they don't better understand these areas, they will ultimately hold them back. And not only do I worry that they will be held back, but I worry that if they are held back, they will grow insecure and lose confidence in themselves. This would be heartbreaking. So it's my job to find the right balance between spoiling them a little and pointing out areas where we can work...all while giving unconditional love and support. So what's going on here JK? Why are you bringing all this up?
RESPONSIBILITY -Well...this is how I see things right now in the global economy and global financial markets, with the US market front and center. I look at governments and central banks as the parents. For simplicity, let's define governments and central banks as ("The GCB"). The GCB wants to make sure its citizens have the best possible opportunities and should try to do whatever it can to put the people of its country in the best possible position. And just as with a parent, the GCB also needs to mindful of the dangers associated with spoiling too much and with ignoring areas that need work and that need to be understood some more. Right now, I am deeply distressed about the state of things and believe there has been far too much spoiling, and far too much neglect of some underlying challenges that have been shrugged off and brushed under the rug.
THE HEAVENS - The use of excessive monetary policy accommodation to stimulate the global economy may have been necessary, but the ongoing neglect to consider the strain this policy is now putting on risk assets is arguably negligent. The run up we've seen in the stock market has given off the impression that all is well, and yet, the degree to which the market has run, is well past where it should have been able to run without the benefit of being spoiled. This rally has actually been a lot less about the market running and so much more about the GCB pulling it along. There is simply no denying the fact that a low to zero interest rate environment is going to have an effect of driving up stock markets. And so, by extension, when this policy as been exhausted, we are all of a sudden staring at a market that has ascended to the heavens, and no longer has the ability to recognize what it is that drove it there.
THE NEXT CHAPTER - I don't believe this story ends well and I am very worried about the possible fallout. As far as strategy goes, it's critical that I highlight the fact that just because I have been worried about something that has yet to materialize, does not mean it won't happen. It's true. Perhaps I should have better understood the market mentality into 2017. But that doesn't change the fact that we are looking at a situation where a parent has perhaps gone way too far in neglecting its child and it doesn't change the fact that there will be earth shattering consequences for this at some point in the not too distant future.