Thanks. Please explain this. I am so eager to learn about this.
Long back when capitalism made appearance it was driven by adam smiths free market theory. Which advocates market and economy left to the market players and ‘supply and demand’, with minimum or no interference from the government. But when the shit jumps off the floor and hits the roof like it did during the great depression of 1930s, It takes the shit a really long time to return to the floor on the market forces accord. which usually means 10-15 years of job losses and economy in shambles. It is like a generation lost.
So these days, when a black swan event happens, central banks step in with massive massive liquidity to reduce those 15 years to 12-24 months and normalize the economy asap.
It happened during the housing crisis of 2007 too with govt bailouts and liquidity support through near zero interest rate by US Fed.
The US Fed, besides keeping interest rates near zero, has been pumping in 120 billion dollars every month since march2020. Add to that, the money pumped in by ECB, bank of japan, bank of England, and others.
All this money goes to big institutions and eventually finds its way to the share market and other instruments. This is the reason why the markets have been going up and up. And lot of people just kept waiting for a fall.
In the short term, this liquidity makes the rich richer, and the poor suffer. But the economy and jobs get saved, and govts got no better alternative. No wonder elon must is worth 200bn and even crypto..
Anyway, the party might be near its end. Talks are already on about tapering (reducing that ‘120bn a month‘ gradually) and then increasing interest rates to start sucking out liquIdity somewhat. Tapering is expected dec or even from nov if covid keeps withering away and us job growth data is promising.
Regarding bond yields my knowledge is very elementary.
when Fed hikes interest rates some investors pull out money from shares and move into bonds. Also, When US inflation starts to go out of comfort zone, investors read it as more likelihood of rate hike. And bond yields go up in anticipation. And when bond yields go alarmingly high share market panics.
tapering has been more or less factored in. Markets might react on any comments by Fed on nov 4, that indicate earlier than expected rate hikes.
Anyway, will nifty go back to 14k or 15k? not likely.
what you all think?
