– An article by Samuel Harrison, current MIF student –

The last few weeks in financial markets have been surprisingly positive, compounding on earlier gains which many expected to be lost with immediate capitulation. This has made for the perfect environment for our class portfolio competition, which is now well underway.

My classmate and group teammate, Stefan Culibrk, CAIA, is an avid follower of the markets and has offered his insight and viewpoint on the current investment climate. Stefan argues:

“We would all agree that central bank measures across the globe in the last four years have been nothing less than unprecedented. With quantitative easing and ultra-low interest rates in place, one would have thought that central banks have run out of bullets. However, during last four months, most of major central banks still managed to be in headlines due to plethora of reflationary measures – ECB started first round of 3-year LTRO, the Fed pledged to keep rates at ultra-low until 2014, People’s Bank of China cut its reserve requirement and even the one with hardest stance against reflationarists, the  Bank of Japan, adopted formal inflation targets and doubled its bond purchase program in an attempt to finally conquer deflation and weaken the yen.

Although this wave of central banker hyperactivity is, especially at this stage, broadly positive, fears about bubbly asset valuations might come back to the table as soon as the phrase ‘exit strategy’ starts to get mentioned. If, on the other hand, central bankers continue to stimulate the sugar rush in risk assets rather than look at the real economy, repeating the mistake from the Great Moderation era, inflation could roar its ugly head much sooner than anyone expects.”

Interesting comments from Stefan, which I totally agree with. For now, it will be interesting to see what impact, if any, this central bank activity is having on the real economy and a first indicator may be the non-farm payroll figures coming up this Friday!

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