Charles Dumas at TS Lombard asked this question: “With the S&P at 2580, which is more likely over the next 12 months: 3000 or 2160?” His answer was that there are at least three reasons in the short term why the risk of prices heading upwards to form a bubble were greater the downside bear risk of prices collapsing. One was that the world economy was strong, with Europe now adding to demand from the US and China to generate synchronised growth for the first time this century. The second was that commentators were, on the whole, still defensive, advancing reasons for the market to sell off despite there being buying power from investors. And the third was that the combination of very low underlying inflation rates in the US, Europe and Japan, coupled with central banks’ desire to push inflation to 2% was likely to brew a bubble.
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