2 Sides Of A Bubble Coin? Reserve Banks v Investors

FOR

https://www.bloomberg.com/view/articles/2018-01-1…

With QE having multiplied the amount of fiat money issued by central banks in just a few years, it's fair to wonder: How come it didn't trigger much higher levels of inflation than what we now see? The technical answer is that the money created has ended up full circle -- on the books of the central banks.

The more fundamental answer is that QE resulted in a wealth increase for the richest, who consume relatively little of their revenue, while the middle class and the neediest largely failed to reap any benefit. Having not gained from QE, their consumption has not risen, leaving prices pretty much flat.

There are many problems with this, from growing inequality to pressures on social cohesion. But one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash, as Jeremy Grantham, co-founder of the investment firm GMO, argued in a note last week. He predicts a "melt-up" -- where investors pile into assets as prices rise -- followed by a significant decline "of some 50 percent."

and this...

AGAINST

http://www.thesundaily.my/news/2018/01/16/quantit…

The rating agency said in its report that global asset prices continued to expand slightly in the second half of 2017, mainly driven by advances in equity prices, while sovereign bond prices weakened further but remained significantly above long-term averages.

However, it stressed that even though those asset prices may fall back when QE is withdrawn, that does not imply an “asset bubble”.

“In fact, declines in long-term interest rates have been driven by more than just QE.” Moody’s foresees global financial conditions to remain favourable for bond issuance and credit in 2018 on the back of robust economic growth and broadly stable asset quality and capital levels in the banking sector.

Questions:

Has the aggressive quantitative easing since the GFC been overdone, with too much emphasis on printing money rather than on where the government debt winds up?

Can the continued appreciation of the S&P500 since the GFC, especially in 2017, without significantly dipping, be linked to the aggressiveness of QE?

What can investors do regarding asset allocation to remain optimal in this environment?