Asset prices: More bricks, fewer bubbles

Posted: December 6, 2013 in economy
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UK Only Article: 
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The rise of BlackRock

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Asset prices


Financial markets are looking frothy. The answer is not tighter monetary policy, but more public investment

THIS newspaper has a history of fretting about financial bubbles, and has frequently criticised central bankers for inflating them. In 1998 we urged Alan Greenspan, then chairman of America’s Federal Reserve, to raise interest rates to dampen a stockmarket bubble. In 2003, four years before the financial crisis, we became worried about a housing bubble, and again urged central bankers to tighten monetary policy.
Given this record, you might expect The Economist to be urging tighter policy today. For all manner of asset prices have been soaring, and some are reaching territory that is hard to justify with economic fundamentals (see article).

The S&P 500 share index is up nearly 30% this year, even as America’s recovery has been lacklustre. Measured against an historic average of profits, its price-earnings ratio, at 25, is well above its historical norm …

via Economic Crisis


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