Room to boom or boom to bust?

A YEAR and a half ago - despite nearly four years of unprecedented global monetary stimulus - investors were still uncertain as to whether the global macro environment was in fact improving, whether the great monetary experiment following the 2008 crisis was working or whether deflation would take hold on a global basis.

It is easy to forget, in light of recent events, that equity markets in the summer of 2012 turned sharply lower, led by the eurozone, China and Japan, all revisiting levels close to their 2009 troughs. Long-duration US bond yields were hitting their all-time lows, two-year paper traded at 20 basis points and peripheral European government bond yields, which had dropped sharply in early 2012, spiked for a second time to 25-per-cent-plus levels.

I am sure many investors entered 2012 thinking that after three years of massive monetary stimulus, fiscal austerity, bank restructuring, regulatory reforms and cheap equity markets, 2012 would mark the key "turnaround" year for asset appreciation and economic recovery. Six months into the year, those same concerns that plagued investors in 2008 and 2009 were back with a vengeance.