Pre GFC High 10 Years Ago

This week has seen two milestones for the world’s largest share index, the S&P500 in the US.  This week it hit a new all-time high whilst also marking the 10 year anniversary of its final high before the GFC saw it lose more than half its value.  Since the GFC the US Fed pumped $4.5 trillion into the system to save and then refloat it, and boy did it ‘work’.  Deutsche Bank just released the results of how 38 of the main global assets performed since that pre GFC peak.  So to be clear these are how things have performed since the peak, not the bottom.

Not surprisingly the S&P500 topped the list.  You will note too that a whole lot of bonds, topped by US High Yield have excelled courtesy of the 2^nd of the Fed’s reflation vehicles… zero interest rates.  When you look at the big winners they have all been the direct benefactors of the unprecedented quantitative easing and zero interest rate policies dominating markets since.  You will note Gold came in 5^th overall which might lead you to think people were happy to play the free money game but wanted their hedge in place to the inevitable outcome…

Interestingly too you will note many of the poor performers were from emerging markets and the still struggling Euro basket cases.  The latter goes some way to explaining the following chart which shows how the ECB has overtaken both the Fed and Bank of Japan in the amount of money printing they have undertaken, buying up both sovereign and corporate bonds at a rapacious rate.

So the elephant in the room remains… what happens when the Fed embarks on pushing that pink line down with QT (Quantitative Tightening), in tandem with rate rises, and at a time that the market is overvalued, at all-time highs, and hooked on the ‘juice’?  What happens if the ECB start to plateau out their white line when they still have basket case nations not even above pre GFC highs despite the ECB pumping over $5 trillion into the Euro market?