In the next 12 months, the asset and debt bubbles that underpin global imbalances and growth will be deflated. Today’s bubbles – from US consumer debt and much of the global housing market to the China story and umpteen bond markets – are all a result of underpriced capital. The cure, as always, will be a repricing and reduced supply of capital.
Financial markets will experience negative returns for bonds and equities, outperformance of gold and a weakening of the US dollar and the commodity currencies against the euro and the yen.
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