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| It is time to stop central bank madness and get back to economic reality, says Old Mutual Global Investors' Richard Buxton |
He explains why he believes it is time to return to normality.
No one likes a harsh winter. Lack of daylight hours and inclement weather, particularly freezing fog, can make conditions hazardous, leaving drivers with reduced visibility. It’s enough to send, even the most patient of us, slightly mad.
For stock market investors, the last eight years have witnessed these traits.
‘Reduced visibility’ has been in evidence because central bankers have created a wholly artificial financial environment, by crushing bond yields through the use of their persistent and counterproductive quantitative easing.
This has resulted in bond prices grinding ever higher and distorting company valuations in the process as investors looked for yield.
This endless search for yield has resulted in ‘bond proxies’ (companies which offer investors a semi-decent yield, akin to a bond-like coupon) reigning supreme, with little care for valuation levels and comparative risks.
The prevailing low interest rate environment has denied banks a decent interest rate spread, so crucial for the maintenance of their profitability, while savers have been robbed of any sort of reward on hard-earned savings.