Aurelia Butler

Globalisation hasn’t collapsed amid Covid-19. That’s the takeaway from the latest DHL/New York University report on globalisation, which is a yearly deep dive into data around global trade, capital, information and people flows. It’s always a great finger to the wind about global connectivity, and it will reassure many FT folks.First, while connectedness did decline somewhat in 2020, the authors say it’s on track to rise by the end of 2021. This is in part because the US and China still need each other — trade between the two nations actually increased during the pandemic (though it must be said that this was coming off a major decline in 2019). Trade in overall goods is already at pre-pandemic levels, and while cross-border portfolio flows declined sharply in 2020, foreign direct investment was up in 2021.One thing that surprised me was that while long-distance trade in goods was up (again, in part because China was supplying so much of what the world needed amid Covid), digital information flows have gone back to a slower longer run trend after growing sharply at the beginning of the pandemic.This is counterintuitive. There’s been an assumption that trade in goods will become much more regionalised. This stems from issues with monopoly power, supply chain problems, emissions costs and geopolitics. There is also a desire to have production and consumption linked together in new industrial systems that are built on resiliency rather than efficiency. (See my article here, on why manufacturing still matters for most superpowers.) Dan Breznitz’s book Innovation In Real Places also does a nice job of saying why that’s so important.But everyone thought that cross-border information flows would continue to rise exponentially, as they have in recent years. For more on this, read my colleague Gillian Tett’s column from last year in which she wrote about why reports of globalisation’s death were greatly exaggerated.It may be that the clamp down in both capital and data between the US and China is creating the beginnings of a splinternet. The global regulation of technology giants in so many regions, countries and states may be having an effect too. It’s getting more difficult for data to flow quite so easily across borders given the different regulatory regimes emerging.It’s also worth pointing out that some of the regionalisation of trade that is occurring, particularly in areas such as semiconductor foundry creation, could be a decade-long process. Building, let alone building back better, takes time.I suspect next year’s survey may show a bit more regionalisation, particularly if we continue to see divergence between emerging markets and rich countries in the post-Covid economy, different regimes globally in tech and trade, more travel restrictions and continued supply chain rejiggering. Ed, what’s your bet? And I’m curious if you have any soft metrics or personal anecdotes of your own that you’d call out to illustrate your take on the state of globalisation today?Recommended readingGillian’s piece this week on how congressional sausage making can end up with the wrong legislation for the right reasons is a cautionary tale for Washington and Wall Street.Katherine Eban writes a worrisome feature in Vanity Fair about the Biden administration’s failed efforts to distribute donated vaccines across the world so we don’t see more Covid variants. Also worth a read is Eban’s recent book on the problems in the booming generic drug business, Bottle of Lies, which didn’t get enough attention.I picked up my first-ever issue of the hipster New Yorker, n+1, and really enjoyed this piece, documenting an early moment-by-moment experience with the pandemic.Edward Luce respondsRana, I’m all about soft metrics, particularly when I feel the hard ones are too difficult to dispute. Our colleague Alan Beattie, and FT contributor Megan Greene have both recently written about the resumption of normal globalisation. What you write about the slowdown of cross-border information flows both surprises me, for the reasons that you set out, but also resonates with some recent anecdotal experience. I have subscribed to the view that Covid did not change the contours of history so much as accelerate pre-existing trends — with digitisation being an obvious example. Another of those trends is the emergence of a cold war between the US and China, which will increasingly lead to technological bifurcation, as you point out. Other countries are taking note. I was recently in Abu Dhabi and could not get around the local internet censorship with my VPN, as was easily the case the last time I was there two years ago. In India, the changes have been even more pronounced. I suspect within a few years it will be normal for large areas of the world to be sealed off from the global internet, or at least from big chunks of it. VPNs won’t work. Data clouds will be nationalised. And information will increasingly be weaponised. Covid has undoubtedly increased our ability to work remotely. But I think it has also provided cover for governments to impose controls far more quickly and stringently than they otherwise would. Thus we have accelerated digitalisation of our increasingly privatised lives but restricted information flows, and there is less openness on a global scale. I don’t like either of these trends. If this week’s virtual Summit for Democracy can achieve anything, I hope it will be able to deliver a robust pledge in favour of open digital standards and the global internet. I don’t hold out much hope such a declaration would have teeth. But the pledge in itself could plant a seed of something more useful. Your feedbackAnd now a word from our Swampians . . . In response to ‘America’s long goodbye to Roe vs Wade’:“Rana, I can relate to every one of the points you made but they are all oh so thoughtful and contained. What about your feelings? Your horror? Your rage? What if you didn’t live in New York and your daughter didn’t have a British passport and a family with sufficient funds to whisk her away? How would you feel, then?” — Elizabeth Neustadt, Cambridge, Massachusetts“Jurists on all sides have considered Roe vs Wade ‘bad’ law — Ruth Bader Ginsburg being one famous example — and that the real solution lies with voters and Congress . . . By refusing to move to proper federal regulation pro-choicer purists may have done as much damage as the more bigoted of the pro-lifers.” — Simon Noble, Madrid, Spain More

BEIJING (Reuters) -China’s central bank said on Monday it would cut the amount of cash that banks must hold in reserve, its second such move this year, releasing 1.2 trillion yuan ($188 billion) in long-term liquidity to bolster slowing economic growth.The People’s Bank of China (PBOC) said on its website it would cut the reserve requirement ratio (RRR) for banks by 50 basis points (bps), effective from Dec. 15. The world’s second-largest economy, which staged an impressive rebound from last year’s pandemic slump, has lost momentum in recent months as it grapples with a slowing manufacturing sector, debt problems in the property market and persistent COVID-19 outbreaks.Some analysts believe growth could slow further in the fourth quarter from the third quarter’s 4.9%, although the full-year growth could still be around 8%.”The RRR reduction will help alleviate the downward pressure on the economy and smooth the economic growth curve,” said Wen Bin, a senior economist at Minsheng Bank.”Although there is little pressure to achieve this year’s economic growth target, economic work will face big pressures and challenges next year.”The government has set a relatively modest annual economic growth target, at above 6%, for this year, coming off the pandemic-stricken 2020.The cut, the second this year following a similar broad-based reduction in July, was flagged by Premier Li Keqiang on Friday as a way to step up support for the economy, especially small firms.The cut will not apply to financial institutions with existing RRR of 5%, it said, adding that the weighted average RRR for financial institutions will be at 8.4% after the new reduction.The RRR for large banks, after taking into consideration the preferential policy of targeted cuts for inclusive financing, is currently at 10.5%.Some of the funds released will be used to repay matured medium-term lending facility loans, according to PBOC, reaffirming a stance of not resorting to “flood-like” stimulus.The central bank will guide financial institutions to actively use the released funds to step up support for the real economy, especially small firms, it said.The RRR cut will reduce the funding cost of financial institutions by about 15 billion yuan per year, which will help lower financing costs of firms, it added.PROPERTY POLICY IN SPOTLIGHTAdvisers to China’s government will recommend authorities set a 2022 economic growth target below the one for 2021, giving policymakers more room to push structural reforms..President Xi Jinping said the economic situation at home and abroad remains complex, adding that China will maintain overall social stability for the 20th Party Congress next year, the official Xinhua news agency said. China will deepen reforms and opening up, and promote higher quality development, Xi said.China’s Politburo, a top decision-making body of the ruling Communist Party, said on Monday that it would keep economic operations within reasonable range in 2022, and will promote the healthy development of the property sector, Xinhua said.”The key question on investors’ mind is whether the government is willing to change the policy stance in the property sector, how much will be changed, and whether a change of stance can really help to turn the sector around,” said Zhiwei Zhang, Chief Economist at Pinpoint Asset Management.China’s move to wean property developers away from rampant borrowing has translated into loan losses for banks and pain in credit markets. It has also worsened a liquidity crisis at developer China Evergrande and other real-estate firms.The authorities said on Friday they would step in and oversee risk management at the company. Authorities have recently made financing tweaks to help home buyers and widened fund-raising channels for some developers.The new Omicron coronavirus variant has also added uncertainty, as Beijing’s zero-COVID approach to stamp out local cases hit many small businesses.($1 = 6.3749 Chinese yuan renminbi) More

Investing.com — China loosens monetary policy as the country’s financial sector braces for an official debt restructuring announcement from Evergrande, the country’s largest and most indebted real estate developer. Crypto crashes – led by (Bitcoin) as the dollar gets a safe haven bid. Stocks are set to open the new week mixed after selling off on Friday in response to the labor market report. Kohls is under pressure to sell itself. The Omicron variant of Covid-19 continues to spread but may be less dangerous than Delta, and oil prices firm as Saudi Arabia hikes its official selling prices for January. Here’s what you need to know in financial markets on Monday, 6th December.1. China eases with Evergrande on the brink of defaultChina’s central bank loosened monetary policy, aiming to head off financial instability caused by the likely default of embattled real estate developer China Evergrande later Monday.Evergrande warned on Friday that it’s looking at maybe restructuring its dollar bonds, saying there was “no guarantee” that it would be able to continue meeting its financial obligations. The 30-day grace period for two dollar bonds on which Evergrande missed payment last month expires Monday.The People’s Bank of China will cut the amount that banks are required to hold on reserve by 0.5% to a weighted average of around 8.4% of eligible liabilities. That’s a broad-based easing of monetary conditions that will free up around 1.2 trillion yuan ($188 billion) in liquidity for the banking system.   Chinese stocks rallied on the rumor and sold off on the fact of the move. The Shanghai Shenzhen CSI 300 fell 0.2% but the Hong Kong-based Hang Seng index fell 1.7% to its lowest in 15 months. The yuan edged lower against the dollar but is still trading close to a three-year high.2.  Crypto crashesCrypto fell out of bed with a thud over the weekend, in what appeared to be a reaction to the Federal Reserve’s heavy hints last week that it will speed up the pace of tightening monetary policy next year.Bitcoin fell as much as 20% in the overnight session between Friday and Saturday, but had recovered by 6:30 AM ET (1130 GMT) to be at $48,116, down just under 9% from where it was in the minutes leading up to the crash. At its low point on Saturday, Bitcoin as down nearly 40% from its peak a month ago.Other coins have inevitably been dragged down too, with Ethereum being the only clear outperformer among major names. It’s down only 8.6% on the week, compared to declines of 17% for Bitcoin, 13% for Solana and 19% for Cardano. Stablecoins such as Tether and USD Coin have held up even better, reflecting a still-high degree of confidence in their dollar backing, despite Tether’s repeated failures to address regulatory concerns about its reserves.3. Stocks set to open mixed; Kohls in playU.S. stock markets are set to open mixed later, with interest-rate sensitive Nasdaq 100 futures underperforming. Fears about Fed tightening continue to bubble after a labor market report that was stronger than it looked at first glance.By 6:15 AM ET, Dow Jones futures were up 149 points, or 0.4%, while S&P 500 futures were up 0.1% and Nasdaq 100 futures were down 0.4%. All three indices had closed the week with losses on Friday. The Dow has now fallen for four weeks in a row, while the S&P and Nasdaq Composite have fallen in three of the last four weeks.Stocks likely to be in focus later include Kohls, where activist investor Engine called for either a sale of the business or a spin-off of its e-commerce operations. Also in focus will be Nvidia (NASDAQ:NVDA) stock, as regulatory opposition to its bid for chip designer ARM reaches what looks like critical levels. Softbank (OTC:SFTBY) shares fell over 8% in Tokyo to a 16-month low as the prospect of a juicy cash-out receded.4. Fauci ‘encouraged’ by Omicron news so farEarly news about the spread of the Omicron variant of Covid-19 is “a bit encouraging”, according to President Joe Biden’s chief medical advisor Anthony Fauci.Fauci told CNN in a weekend interview that “it doesn’t look like there’s a great degree of severity to it,” adding that existing vaccines appear to offer a still-high degree of protection against it.  The new strain of Covid has now appeared in 40 countries and 15 states of the U.S., but the latest data from South Africa shows hospital admissions still well below previous peaks despite rising rapidly from low levels. Various reports from the country suggest that the new strain is taking more of a toll on younger patients, with over two-thirds of admissions in the region around the capital Pretoria being of patients under 40.5. Oil rises after last week’s clean-out; Saudi raises official selling pricesOil prices rose after Saudi Arabia raised its official selling prices to customers in Asia and the U.S. for January.The move was interpreted as a sign of confidence in underlying demand for crude despite the lingering uncertainty over the impact of the lastest wave of Covid-19 infections and a real-estate-induced slowdown in China.The market shrugged off numbers out of Europe’s largest economy earlier in the day that showed the second sharp drop in three months in German factory orders, typically a reliable if volatile leading indicator for the region.By 6:30 AM ET, U.S. crude futures were up 2.8% at $68.14 a barrel, while Brent was up 2.6% at $71.71 a barrel. The CFTC’s positioning data on Friday had also showed net speculative long positions at their lowest all year. More

“The Danish economy is in a really, really strong period after corona and things are almost moving too fast,” Finance Minister Nicolai Wammen told reporters.”With this budget we are taking the foot off the pedal,” he added.The Danish economy is expected to head into a moderate boom this year and next, and the country’s central bank has urged the government to begin tightening fiscal policy to avoid overheating the economy.The plan would lower economic growth next year by 0.1%, the finance ministry said.”One could easily have argued for a greater tightening,” Danske Bank’s chief economist, Las Olsen, said in a note. “But of course no one can say what exactly is the right dosage.””Unemployment has fallen sharply, and although that in itself is a good thing, we can not continue very much longer with a fall in that pace,” Olsen said.Measures to tighten fiscal policy included removing a tax deduction for home improvement services and postponing public renovation projects.The deal would, however, secure additional funding for Denmark’s health sector, hard-pressed by the coronavirus epidemic and an acute lack of personnel.The parties also agreed to add 2 gigawatt of offshore wind capacity, which will be enough to power some 2 million homes.That is in addition to the three large offshore wind farms Denmark aims to have built before 2030 as part of its plans to reduce its carbon emissions to 70% below its 1990 levels by 2030. More

Hello from Brussels, which is braced for a Christmas in the shadow of the Omicron variant. Last week the government announced the latest restrictions. Restaurants and bars were spared limitations in hours (this is café culture Brussels, after all), and schools kept open for now, but with the ambitious instruction that all children aged six or above must wear face masks. As for Omicron’s impact on the world economy and trade, we’re somewhat optimistic that the blow will be smaller than with previous variants, which themselves weren’t fatal to globalisation. Today’s main piece is on the EU tooling up to take on the trade bullies, and Charted waters is on shipping delays. All for one, and one for allWe’ve been going on for a while about how the EU is arming itself with an array of unilateral (sorry, we keep doing this, “autonomous”) trade instruments. The aim: to clobber trading partners whose companies are being unfairly state-subsidised to export cheap goods, bid for procurement contracts or operate in the EU single market, or which use forced labour or destroy the environment in the process of trading with Europe.A prototype of one of these weapons is being wheeled out of the European Commission workshop this week for examination by the European Parliament and the council of member states. The “anti-coercion instrument” (ACI) would aim to deter — and if necessary hit back with tools such as trade restrictions, divestment and blocks on government procurement — foreign governments from using unfair means to try to force policy change. The European Council on Foreign Relations has an excellent paper on the subject here.There are several intriguing things about this. First, it rests on a creative interpretation of a general principle of public international law, that (roughly speaking) governments are not bound by treaties with foreign governments that are exerting undue coercion, including economic and financial pressure. It was much discussed during the Arab oil embargo of 1973, an attempt to get oil-importing countries to withdraw support for Israel.If the targeted country then challenged the use of the ACI at the World Trade Organization, the EU would have to defend it using various provisions in WTO rules. The strategy is a bit suck-it-and-see — whack a trade restriction on a miscreant foreign government and see if you can convince a WTO dispute settlement panel that it’s justified. Full marks for entrepreneurial legal innovation, anyway.The second interesting aspect is that the likely target has changed, and with it the instrument’s probable scope. The original motive was to hit back at the US under Donald Trump, whose administration was threatening tariffs on imports of European handbags and other consumer goods to try to force EU countries into dropping their digital services taxes.The interim deal on digital services taxes means that rationale has gone, and a much likelier target is now China — which, let’s face it, has created a far richer and nastier array of coercive techniques than being beastly to French handbag makers. Just ask the Australians. The debate now is how to set the rules of deployment: who decides to use the weapon (if it’s the commission on its own, that’s a lot of power to hand it) and under what circumstances. Fans of the idea say it should be flexible and speedy with limited room for discretion. Bernd Lange, chair of the European Parliament’s international trade committee, says: “We should make a whole bouquet of measures possible, so that our measures are not calculable from the outset.” He also wants “a certain element of automaticity to prevent the EU and its member states from being vulnerable to being divided”.Sceptics (including Estonia, Sweden and Japan) are concerned it won’t actually limbo under the bar of WTO rules and will end up with the political management of trade. There is also, of course, the serious risk that the EU becomes a bully itself.As it happens, we’ve got a test case of coercion going on now. Lithuania (population 2.8m, GDP $63bn) has taken on China (population 1.4bn, GDP $15tn), not least by establishing strong relations with Taiwan. Strategic autonomy, indeed. Until now China has made only modest efforts to punish Lithuania, but Vilnius complained on Friday that all its exports were being blocked at Chinese customs. It’s not clear whether the measured response (until recently) is because Beijing thinks Lithuania is too small to matter or whether it fears wider repercussions across Europe.If the latter, would a formal anti-coercion tool help by formalising this threat on the Three Musketeers’ D’Artagnan principle of all member states for one and one for all? Interestingly, a report focusing on the Lithuania case by the Swedish National China Centre, a government funded think-tank — Sweden is the main other EU country subject to bullying by China this year — suggests perhaps not.First, it argues, China’s aggressive diplomacy is unlikely to be deterred by a threat of punishment, and so a cycle of retaliation would start. Rather than a precision instrument operating under closely defined criteria, the ACI would become a blunt weapon which, wielded clumsily, could do serious damage to the wielder. Business lobbies in the EU whose members are regularly caught in trade war crossfire, such as the drinks association spiritsEUROPE (the strange capitalisation is theirs), have urged the commission to make each use of the tool subject to a transparent consultation to evaluate the full economic impact. Second, the ACI can’t be used against coercive acts that are not made public either by the aggressor or the target, as many probably are not.Better than retaliation is “absorption”, the China Centre’s report says, helping coerced member states that find their trade with China blocked to develop other supply chains or giving them financial compensation through a solidarity fund.To some extent the principle in both cases would be the same, an equivalent to Nato’s Article 5 on collective defence: an attack on one member state obliges a collective response. It’s exactly the kind of thing the EU was made for. However, it’s not just the method that’s in question but the political will. Although general disaffection with China has been growing, member states often still vary considerably in their attitude to dealing with Beijing. It’s not just the design of legal tools that matters: it’s also the readiness to use them.Charted watersShipping goods across the world’s main trade arteries is not only super expensive right now, it’s also super slow. We’ve been hearing a lot of anecdotes about this, with much of the attention falling on the delays at ports such as Los Angeles and Long Beach. But what’s been lacking is a data set charting just how bad things have got over the course of the pandemic. Step forward Flexport, which has come up with an Ocean Timeliness Indicator to track journey times from the Far East to the US West Coast and back. Pretty grim, we’re sure you’ll agree. Claire JonesTrade linksThe economist Daron Acemoglu says the supply chain crisis is a chance for a broader conversation about the economy and what it is for.FT reporters wonder whether recent inflation data will cause the Federal Reserve to withdraw stimulus more quickly.Only a quarter of British small businesses are ready for new border controls on imports from the EU due to be imposed in four weeks’ time, a trade body says.A summit between Narendra Modi and Vladimir Putin today may finalise (Nikkei, $) a long-awaited $681m deal to produce Russian assault rifles in India. Japanese brewer Kirin is seeking arbitration (Nikkei, $) to unwind its joint partnership with a military-affiliated company in Myanmar, following other multinationals such as Norway’s Telenor and South Korean steelmaker Posco that have had trouble with the junta. Alan Beattie and Francesca Regalado More

COLOMBO (Reuters) – Sri Lankan authorities will start to crack down on informal remittance inflows as the country seeks to bolster its reserves to meet more than $4.5 billion in debt repayments due next year.Central bank governor Ajith Nivard Cabraal said he has seen a $300 million drop in remittances in just the last month, and vowed to use anti-money laundering laws to stop informal channels from funnelling away millions of dollars of vital foreign exchange reserves from the banking system.Here are details of Sri Lanka’s precarious forex position and the reasons it seeks to halt flows via informal channels:WHY DOES SRI LANKA WANT TO BOLSTER REMITTANCES VIA FORMAL CHANNELS?Remittances and tourism, traditionally among the top sources of foreign exchange earnings, have been hit hard by the pandemic. Tourism receipts slumped to $92.5 million in the first nine months of 2021 from $4.3 billion in 2018.Remittances, which were robust in 2020, fell 9.3% as of Sept. 30 to $4.5 billion from $5.1 billion over the same period in 2020, and declines have accelerated since October.Sri Lanka’s sovereign ratings have been downgraded multiple times in recent months by major rating agencies as it struggled with low public revenues, sluggish growth and reserves that slumped to $2.3 billion as of Oct. 31.The country must make an estimated $4.5 billion in debt and interest payments in 2022, including servicing a $500 million international sovereign bond maturity in January. Meanwhile, its trade deficit in the first nine months of the year ballooned to $6 billion from $4.3 billion in the same period last year. WHY HAVE REMITTANCE FLOWS INTO SRI LANKA VIA FORMAL CHANNELS SLUMPED?In early September, as the Sri Lankan rupee weakened sharply the central bank directed banks to unofficially set the exchange rate at between 200 and 203 Sri Lankan rupees to a dollar. However, currency pressure caused by an expanding trade deficit, limited foreign exchange earnings and concerns around debt repayments have resulted in the rupee changing hands at between 255 and 265 rupee per dollar via informal channels. Migrant workers remitted money via the informal “hawala” system, and remittances via official channels fell to $353 million in September from $703 million in the same month last year.The central bank is now offering migrant workers 10 rupees extra for every dollar they remit via formal channels, but there are doubts this will work given the more attractive exchange rate in unofficial channels.HOW DO INFORMAL CHANNELS WORK?The “hawala” or “undiyal” transfer system allows migrant workers to remit funds, usually cash in the currency they earn in is given to a middleman who in turn ensures that the person’s family in Sri Lanka receives the equivalent amount in rupees. The central bank is now threatening to freeze accounts that receive any unexplained cash transfers or deposits. WHY SRI LANKA DOES NOT WANT TO LET THE RUPEE DEPRECIATE FURTHER?Sri Lanka’s retail inflation has accelerated to nearly a decade-high of 9.9% in November, well above the central bank’s 4%-6% target range.Allowing the rupee to float freely could sharply accelerate inflation for the largely import dependent island economy.HOW DOES THE CENTRAL BANK HOPE TO FIX ITS WEAK FINANCES?The central bank wants to boost reserves by capturing more remittance inflows and is counting on a revival in tourism. Having a greater share of remittance flows is vital as it plans to securitise a portion of the remittances and use this as a guarantee to borrow additional funds. The country is also exploring swap deals with other central banks and credit lines to support imports of essential goods such as food, medicines and fuel. More

The writer is the founder and co-CEO of Elliott ManagementDespite recent jitters over the Omicron variant, global stock market prices remain at or near their highest valuations in history. Bond prices reflect the lowest interest rates in history. And is it any surprise that inflation has broken out of the boundaries of the last 20 years, given the stated goal of policymakers to create more of it? Across the market landscape, risks are building, many of them hidden from view. Yet, in a surprising twist, a growing number of the largest investors in the world — including socially important institutions such as pension funds, university endowments, charitable foundations and the like — are currently lining up to take on more risk, which could have catastrophic implications for these investors, their clients’ capital and the stability of broader public markets. What is driving this behaviour? In the main, it is driven by the radically expansionary monetary and fiscal policies undertaken by developed-world governments since the end of the global financial crisis, which were accelerated after the Covid-19 pandemic rattled markets and depressed economic activity last year. And in part it is driven by benchmarking — the practice of institutional investors measuring their performance against a benchmark such as the S&P 500. As monetary and fiscal policies have pushed securities valuations to new heights, institutional investors have been tempted to overweight their portfolios to stocks, even at record-high prices, for fear of missing out on extraordinary gains. The buying pressure created by these strategies is only driving prices higher and herding capital into risk assets. At present, risks are at, or close to, the highest levels in market history. For instance, the market capitalisation of all domestic US public and private equities is now at 280 per cent of gross domestic product, much higher than the previous peak of 190 per cent just before the collapse of the dotcom bubble. And household equity allocations are at an all-time high of 50 per cent. Eventually, rising inflation, rising interest rates or some unforeseen turn of events could cause a substantial stock and bond market decline, perhaps in an unpredictable sequence. What then for the institutional managers when the rush for the exits begins? One answer might be that the authorities will never allow a sustained downturn in asset prices to happen again. This points to one of the key problems with the current set of monetary and fiscal policies in the developed world: they mask and minimise risks while preventing stock and bond prices from performing their indispensable signalling roles. Currently, policies across the developed world are designed to encourage people to believe that risks are limited and that asset prices, not just the overall functioning of the economy, will always and forever be protected by the government. Due to this extraordinary support for asset prices, almost all investment “strategies” of recent years have made money, are making money and are expected to keep making money. The most successful “strategy,” of course, has been to buy almost any risk asset, leaning hard on the latest fads, using maximum leverage to enhance buying power and buying more on the “dips”. So it is no wonder that under these manufactured conditions, investors would “move out on the risk curve” — investor-speak for taking on more risk unconnected to expected returns. Most investors who say that they are willing to bear more risk do not actually mean that. What they really mean is that they fear missing out on the higher returns experienced by other investors — in other words, missing their benchmarks. However, the ability of governments to protect asset prices from another downturn has never been more constrained. The global $30tn pile of stocks and bonds that have been purchased by central banks in order to drive up their prices has created a gigantic overhang. With inflation rising, policymakers are reaching the limits of their ability to support asset prices in a future downturn without further exacerbating inflationary pressures. With all this in mind, it is puzzling that a growing number of otherwise sober money managers are in the process of boosting their allocations to riskier assets, rather than trying to figure out ways to make some kind of rate of return without giving back years of capital accretion in the next crash or crisis. Investors who have upgraded their risk levels, relying on policymakers to protect the prices of their holdings, may suffer significant and perhaps long-lasting damage when the government-orchestrated music finally stops. More