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July edition of Portfolio Construction: Central Bank Intervention
Since the financial crisis in 2008-09, the investment landscape has been dominated by one theme: central bank intervention or, more precisely, zero interest rates and increased money supply. Broadly speaking, sovereign debt, credit and stocks globally have rallied significantly from 2009 levels. However, the wealth gap has widened in most countries as asset builders represented by the younger generation have only seen modest income growth versus the prices of the assets they are acquiring. They are also earning very little interest income from their savings. This raises two questions:
1) Why is personal income growth falling behind asset prices?
2) If asset prices are rising regardless of fundamentals, are asset bubbles occurring?