Japan's pain on a global scale

It seems that the world's leaders are finally waking up to what should have been obvious all along - the developed world by an large is going to re-enact Japan's misery. The UK have pushed austerity out to 2018, the ECB are admitting European growth will be next to non-existent for years to come, the US is only growing because they're running huge budget deficits - growth will stop as soon as that deficit is tackled - either by going over the cliff or by negotiation.

With major central banks all moping up government bonds (UK, US and Japan in QE, ECB promising it to "stabilise markets" and SNB to recycle the proceeds of their huge purchases of foreign currencies as they cap the Swiss Franc), rates are going to remain very low for a long time to come.

Equities may or may not rise - it seems each round of QE gets a smaller and smaller response as the idiots in equity land finally spot what fixed income land has known all along - QE means things are bad, and when things are bad you buy bonds and sell equities. The extra liquidity being pumped in is no longer prompting the spectacular rallies of the last couple of years - instead it's being saved.

There is a lot of talk of a bond bubble, but if my assertion that the world is experiencing Japan's pain on a global scale is correct then there is plenty of room for yields to fall further - just look at 10 year JGBs at 0.70% versus UK at 1.74%, Germany at 1.29%, France at 1.98% and the US at 1.58%.

New bonds, whether corporate or government issued, will have low coupons and hence long duration and high price volatility in response to moving yields. It'll be a bouncy ride but I believe the trend over the next couple of years is going to remain rising bond prices and at best stagnant equities. Property may continue to rise in select spots as excess liquidity leaks into that asset class, but like equities, at some point reality has to catch up with the market and a correction will occur.