Applied philosophy

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Follow the money

When we try to get to the bottom of what is happening in the financial markets, we prefer to let money flows guide us to the underlying causes. We believe that the massive liquidity injection by major central banks after the Global Financial Crisis has contributed to a strong equity bull market. We think that at least some of the cash in excess of that required to support economic growth has made its way into stock markets. The current spread between money supply growth and nominal GDP growth suggests returns on global equities will be tepid in the next 12 months, which justifies our Underweight, even if we think many fixed income assets will fare even worse.