Dismissing Myths About the Economy and Markets

Economic students studying

Many misconceptions surround markets and economics, and they have influenced market watchers recently. Related to the appeal of several asset classes, these misconceptions affect how analysts judge governments in achieving their policy goals.

We can dismiss these myths with knowledge of big-picture secular dynamics and correct economic facts. Whether you are an investor in Manhattan or an economics tutor in Singapore, debunking market myths will lead to more informed decisions.

Here are two misconceptions that we must stop teaching economics students:

Myth No. 1:

Investors will most possibly lower fixed income exposure. The reason being that it does not look as appealing today. Also, that is especially the case since further exposure will push produce higher.

This idea may seem to make sense at a fundamental level. However, it misses the huge requirement for producing assets in the present investment landscape. According to the EPFR Global, around $200 billion has surged into fixed income funds in 2017.

In 2017, central banks will probably purchase about $1.4 trillion of fixed income assets on merely $1.9 trillion in net supply. These forces led to an essential supply and demand inequity in fixed income markets that would most possibly take some time to work out.

Myth No. 2:

Low levels of unemployment continuously force higher inflation and wage growth.

Ultimately, there has been a well-known misinterpretation regarding how the Philips Curve works. This is because of confidence in the relationship between low unemployment rates and higher inflation as well as wage growth. Some data from Evercore ISI indicates that areas with the lowest unemployment rates have above-average rates of wage growth.

All things considered, however, the relationship between inflation and unemployment is not as stable. Broad inflation will most probably reflect unemployment much more gradually throughout its cycle than it has historically.

Here’s a fact: common market myths should not carry any significance. That is, whether for the performance of asset markets or the course of any economy.