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Ruffer: Martians would be puzzled!
by Sarah Miloudi on Mar 08, 2013 at 07:41
No doubt this will have pleased bullish investors, particularly since monetary policy is broadly expected to support risk assets for some time to come.
However, Russell and Baillie have pointed to the murky undercurrent masked by the sudden rise in stocks, highlighting that in the US unemployment has almost doubled since the credit crisis and growth remains fragile.
'There was ample scope for a market wobble in February – the Italian election, QE dissenters amongst the Fed’s ranks, the long-awaited downgrade of the UK – but in the end equities continued their march higher and in the UK and the US they are now within touching distance of the dizzy pre -crisis highs of 2007.
'If this was explained to a recently arrived Martian he would no doubt be puzzled – US unemployment has almost doubled since 2007, GDP growth is a third lower and debt as a percentage of GDP is within a whisker of doubling. The market is forward looking but this is extreme,' Russell and Baillie said.
The pair said the support offered from developed central banks would offer an 'eye popping' explanation to puzzled aliens, while earthlings have become accustomed to artificially low interest rates and billions in stimulus being used to prop up growth.
They added: 'Many moons ago we wrote of the moral hazard in monetary policy where risk takers were offered the protection of the Greenspan put or whatever assortment of goodies that might fall out of Dr Bernanke’s helicopter.'
'A similar sequence of events is unfolding now and there are parallels with the years leading up to the credit crisis.'
Against this backdrop, Russell and Baillie appear to have waived goodbye to RIC's difficulties, with the £299 million investment company now up 9.4% over the last six months.
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