Mama Bear (the EU) is having an internal battle parts of her want to stay, others want to leave and outsiders want to move in.Goldilocks discovers that Papa Bear (the US) has grown a protectionist streak and is threatening to seal up his house – limiting the global trade that has been keeping everyone warm and well-fed.Yet eventually, she finds that the world she’s thriving in isn’t quite as warm and welcoming as she once thought. In our adapted fairy tale, the economic Goldilocks has been enjoying a good run in the Three Bears' house since the financial crisis, living off their resources and enjoying their services. With the right state reforms and long-term policies, she’ll have a bright future. Although Asia’s markets aren’t as mature, they are growing – and the region’s work ethic is strong. Asia’s economy has long been the heir apparent to its Western relatives. The European Union’s economy is closely tied to the United States’, but it has its own personality and bad habits: negative interest rates and bank subsidies have kept zombie companies alive, and the EU has little appetite for real economic or fiscal reforms. The United States has the biggest, strongest economy around, but it may be top-heavy: for years, the US economy has been pumped up by low interest rates, excessive fiscal stimulus and unfunded borrowing. Financial repression has kept interest rates artificially low and asset classes artificially high. For years, the global economy benefited from the free-spirited monetary policy of central banks around the world, which have created a “just right” environment. Thanks to the strong performance of financial markets since the financial crisis, our economic Goldilocks story features a family of Three Bears who have had quite a bullish run. But like many cautionary tales, this Goldilocks story may not end happily ever after. In fact, today’s environment is “just right” for supporting high equity valuations, tight credit spreads and generally low levels of volatility. The stock is up approximately 50% since it made its public market debut.Our global economy is having a “Goldilocks moment” of sustained growth and low inflation: like the perfectly done porridge in the famous fairy tale, it’s not too hot and not too cold. Investors have demonstrated an appetite for new issues as evidenced by the response to stocks such as Pinterest. Slack just unveiled its IPO filing and the valuation of the tech unicorn has more than doubled since 2018 to $15 billion, the WSJ reports. Meanwhile, with the pace of tech IPOs coming down the pike, it’s evident why investors are partying like it’s 1999. On Monday, personal income and spending data will shed some light on whether the Goldilocks economy plans to stick around for a while. And some consumer companies are lifting prices to offset higher expenses. The one wild card is commodity prices, as evidenced by crude oil rising nearly 40% year-to-date. In fact, investors haven’t been so sure that inflation wouldn’t be too hot or too cold since the Great Recession, suggesting that economic conditions will be just right for the foreseeable future. Yet, the economy isn’t stalled, paving the way for corporate profits which in turn should keep the bull market going. According to data cited in the Wall Street Journal, there’s only a one-in-10 chance that inflation will rise above 3% in the next half-decade compared to a one-in-five chance in September 2018. But the signs are not pointing toward any rise in inflation in the current conditions. Any sign of an inflationary economy could motivate the Federal Reserve to reverse course and begin lifting interest rates again. So what could throw a wrench into the Goldilocks economy and record stock highs? Inflation. | Source: WSJ and FactSet Big Week Ahead for the Dow and S&P Stocks are on a roll amid low inflation and a growing economy. Tech stocks are leading the charge, having advanced nearly 40% since year-end 2018. There’s not even a hint of sell in May, go away, with stocks setting new record highs in an earnings season that was supposed to see the bottom fall out. The Dow and the S&P 500 have climbed 14% and 17% higher year-to-date, respectively, and it’s only the second quarter. In fact, the stars appear to have aligned for a Goldilocks economy – inflation is low, the economy is expanding, and stocks are racing to new highs as a result. We’ve gone from a doom-and-gloom recessionary outlook to one that’s now sunny skies ahead. By CCN.com: If you’re not careful, you’ll get whiplash from the speed at which the mood in the market is changing.
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