Over the last few years I've begun to wonder, whether the Cheshire Cat was right after all,
'We're all mad here.'
UK gilts have turned negative again and now seem likely to stay that way, at least at the two year mark and perhaps in due course the ten. In English, you pay to lend the government your money. Markets now predict the first rate rise to be five years’ away.
In the US, as the economy gets ever stronger and the labour market tightens, interest rates remain near zero and seem likely to rise only slowly. US corporates are awash with oceans of cash, but have been sitting on it fearful of taxes (on repatriation) and a sluggish economy rendering investment pointless.
The accelerating collapse of government bond yields around the globe is turning conventional investing wisdom on its head. The risk free rate is now essentially negative. As a consequence, pension fund deficits grow under the FRS 17 accounting conventions, increasing pressure on corporates to divert precious funds away from shareholders and, more importantly in the long run, investment.
Meanwhile in politics, the UK is coming to terms with the historic vote to leave the EU; the US is locked in a contest between two of the most unpopular candidates in decades; and Europe continues to struggle under the multiple pressures of migration, sluggish growth, high debt and populist politicians promising easy solutions. The Middle East is in flames; China is in transition from a rapid growth emerging market to a more mature middle income country; and Russia scents opportunities amongst the turmoil and weakness in its geopolitical rivals.
The world gets curiouser and curiouser. However amongst all this chaos, in my view at least, there is a different narrative appearing. There are signs that gradually, led as ever by the US locomotive, the global economy is beginning to turn just a little more enthusiastically positive.
Banking systems globally are stronger, consumers are feeling a little more expansive, just a little inflation seems likely to creep back into the system as commodity prices stabilise and slowly, the wounds and shock caused by the Great Recession feel like they are beginning to heal.
In the US there are signs that not only is unemployment nearing pre crisis lows but the labour force participation rate is just beginning to pick up. In time this may lead to wages finally beginning to accelerate and so a virtuous circle of demand driven growth, a little inflation to ease both private and public sector debt and strengthening investment may finally start.
From my perspective (and it’s all a little anecdotal) we're seeing deals still being done in the consumer industries, trading is still positive for our clients and July was our busiest month for deals closing since the turn of the year (18 deals in July compared to an average of 12 per month in the preceding six months).
It is always difficult to call a turning point. Indeed one could argue that there is no turn and that we're in the middle of a prolonged expansion. However it has been a joyless one, particularly for the core electorates who have seen their living standards stagnate.
Is it me or is there just a little more joy in the air? Maybe I'm imagining it. I don't know but as the Mad Hatter said,
'A dream is not reality, but who's to say which is which?.'