THE
S&P 500, INTEREST RATES & GIBSON’S PARADOX
Inflation is a complex phenomenon that means different things to different people.
For most people, it means a general rise in prices of goods and services while, for others, including us, it has broader connotations. For example, there are strong links with increases (inflation) in the money supply, or the expansion of credit in general. The latter tends to drive price rises, if not immediately, then on longer-term time horizons.
The most startling aspect of “inflation” since the Lehman crisis has not been in consumer prices, but the expansion of central bank balance sheets. The “Big 6” central banks – Federal Reserve, ECB, BoJ, BoE, PBoC and SNB – have created more than US$12 trillion of new credit since 2009.
The current rate of growth remains towards the high end of the range that we’ve seen during the last four years (see Chart 2).
Central bank QE programmes have focused on bond buying, prolonging what is now a largely unbroken bull market in, for example, Treasury Bonds stretching back 35 years (see Chart 3).
1) Central Bank Balance Sheets: Fed + ECB + BoJ + BoE + PBoC + SNB (US$bn)
20,000 19,000 18,000 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000
Source: ADM ISI, Bloomberg 2) Central Bank Balance Sheets - Fed + ECB + BoJ + BoE + PBoC + SNB (% yoy)
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5%
Source: ADM ISI, Bloomberg 3)
Source: Bloomberg
24 | ADMISI - The Ghost In The Machine | January/February 2017
2009
2008
2010
2009
2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016
2016
2017
2017
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36
