Is the real risk on the economic up-side?

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#1
Things have been bumbling along for ages - markets generally at high valuations, or new highs, ultra-low (or even negative) interest rates, minimal inflation or even deflation. A gradual, but very small increase in US interest rates starting in the middle of the year seems partly factored in, although there are mixed signals with the possibility that interest rate rises may be delayed due to low inflation/deflation and/or the effect on capital markets. There are known risks - Euro area (Greece), Argentina/Brazil/Venezuela, Russia & Ukraine, the effect of the strengthening dollar on countries and companies that have borrowed in dollars. Those risks have been known about for months, but nothing much has really happened to shake the markets, other than the commodity markets. My question is whether the real risk involves 'good' news, not bad. The huge reductions in oil and other commodities act like a big tax cut for consuming nations - but it takes 6 to 12 months for such effects to filter through to the real economy. Meanwhile, the US has been adding jobs at a healthy pace through a tough winter. Europe may be finally coming out of recession, partly naturally and partly with QE. If the US and Europe pick up, China is bound to get a boost. If things really accelerate economically over the summer are we going to start seeing a tight US jobs market/ wage increases (already signs of this) and potential inflation? Is the Fed suddenly going to wake up and ramp up interest rates faster than expected - crashing bond markets and over-priced property markets, and accelerating the rise of the dollar? It could be a bumpy ride later in the year. But what is the bigger risk - negative news or positive news?
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#2
The risks is definitely on the economic up-side.

However, in terms of global asset prices is a question of if the news is in the price given the massive run up in prices due to the various QE.

Frankly if global economic momentum doesn't pick up on the gush of liquidity, then the liquidity trap and associated problems accompanying will be worrying for policy makers.

To me, economic up-tick is a forgone and the strength of it and rate at which interest rate hikes will determine how fast the current asset inflation cycle ends.

For sure, all good things must come to an end but I always maintain that the party won't end on the first signs of rate hikes but rather how complacent market participants are and how wild the final parties are going to be...

1987, 1997, 2007... 2017?
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#3
I am cautious on the recovery.

The biggest risk, i think, is the asymmetry of policy - we have room to tighten but not much room to loosen. Calculations abound, but the general number I've gathered, is that QE3 with ard 1.6t (?) of USD printing at the zero bound, has only the equivalent effect of a 50bps cut during more normal times. The lack of traction has a lot to do with the velocity slowing and of cos, bank deleveraging.

Summers made a point during Davos - historically, it takes roughly 400bps of rate cut to stimulate the economy out of a severe shock. Given how slow we are able to get above the zero bound, what happens if something shocks the system again? Another terrorist attack, a further commodity shock, junk bonds bubble bursting etc? If 1.6t gives 50bps of stimulus, I'm not sure whether 1.6*8=12.8t will give 4% effect - relationship is not linear i will imagine.

I think for the recovery to be solid, fiscal policies really have to be better effected. I just don't see how the US and EU are able to get their acts together in the medium term horizon.

Locally, i think the confluence of a rising SIBOR together with the productivity drive is going to make things very wobbly. Hopefully the authorities are realistic with how productive the workforce really can be and have their ears+eyes on the ground.
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