October 17, 2016: The calm before the storm. Developed world financial markets (U.S., Japan and Europe) have become numb to the long-term effects of unprecedented monetary stimulus. The companies in the S&P500 are now reporting their 6th quarterly drop in revenue and 4th quarterly drop in corporate profits. The labor recovery peaked 8 months ago (job openings and unemployment) as weak hiring is catching up to weak GDP growth. After a 1% revised first half U.S. GDP growth, the second half of the year was supposed to bounce back – it has not. Yet both stock and bond markets remain near all-time highs amidst very low (by historic standards) volatility. The developed world stock markets have benefited from very low cost borrowing to facilitate share buy-backs, artificially creating higher earnings per share; bonds have benefited from Central Bank buy-backs as well.
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