Why Do Stocks Rally when the Macro Data Is Dire? (w/ Jim Keohane)
ED HARRISON: We were talking about the coronavirus and we're talking about risk, and the question I had for you as someone who's in the business is, how is it possible that equity markets continue to go up almost more now and the macro risks are greater? And it's not just the coronavirus. It's also the fact that you look at growth global growth in general, you look at the PMIs that came out of Europe as an example-- very negative industrial production numbers, even in December before the coronavirus hit. So how is it that your equities-- the DAX is an example-- all time high. I don't understand how that's how people are doing that and what's going to happen to those two those markets when bad things happen. JIM KEOHANE: Well, I scratched my head a bit on that, too. But I've seen that before. If you go back to 2007-- and we're involved in all these markets, we could see it going on-- the credit crisis is well underway six months before the market peaked. So it was all there for you to see. And the market completely ignored it for a period of time. And so it's interesting-- my observation over time is that markets, even when they've got momentum, can go a lot harder than you think they're going to go. And they tend to ignore facts when it suits them. And we may be one of those peers right now where you look back a couple of years, you think, what were people thinking about? Because if you look back in 2010, what was going on at that point, you thought, why didn't people see that? So I think there's a bit of that now. I don't think people think it's a blip that we're going to look through. And everything is going to be fine. And central banks have the ability to manage all these things, which I think if you look previous periods before the last 10 years, you can see there's lots of things where central banks can't manage that. Again, it's a bit surprising, but that pattern I've seen before.