Investors pour huge sums into US equity funds – FT.com

World map showing countries by nominal GDP per...

World map showing countries by nominal GDP per capita in 2008, IMF estimates as of April 2009. Sbw01f’s work, but converted to an SVG file instead. (Photo credit: Wikipedia)

In my view, this article in the FT is WELL WORTH A READ. Check it out!

Investors pour huge sums into US equity funds – FT.com.

I suppose that I was not surprised at the news, given the Fed‘s clarification of US monetary policy announced earlier in the week. However, what caught my attention was that the rise in equities was led by big banks. Small investors are piling back into equities on a pre-2008 scale.

Of course, what happens in financial markets is not necessarily linked to the real economy. Whilst the financial market has recovered and indeed is at new heights, wealthy investors are smiling; the unemployed or those who suffered house repossessions from sub-prime loans are likely are still likely to be suffering.The Fed, of course, is hoping that the real economy will play catch up to the financial markets.

In 2008, the US Government intervened with massive Keynesian interventions and extremely loose monetary policy.  Europe sadly played too much to Austerian politicians in London and Berlin, so the real economies in Europe are way behind the US in terms of recovery. Berlin’s austerity policies have meant doom, gloom and pain for most of Southern Europe, where in countries, like Greece, suicides are at record levels.

For sure, European financial markets will follow those in the US. However, many European economies will still seriously lag the financial because of tight fiscal policy. In my mind, Europe still desperately needs a massive investment stimulus.

Let me turn it around to an open question?

How will real economies in Europe react to the record highs in US financial markets?

Any thoughts?

 

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