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Welcome to Charts that Count.
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And welcome, more importantly, to the everything rally.
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The price of just about every financial asset is headed up,
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and they are headed up in unison.
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Let's take just a couple of examples.
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Start with US stocks, which are right back up
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against their all-time highs.
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We'll look at junk bonds, which are enjoying a screaming rally.
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Finally, consider commodities.
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Gold and iron ore are jamming.
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Even oil is rising, and the world
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has too much of that stuff.
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What is the explanation for all of
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this synchronised exuberance?
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The most popular theory has it that a powerful combination
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of activism by the Federal Reserve and other central banks
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and low growth expectations have driven real bond yields -
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that is inflation-adjusted bond yields - down below zero.
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This means, to simplify only slightly,
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that borrowing costs are negligible.
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Or, to put it another way, that money is free.
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Under those conditions, no asset price can be too high.
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After all, you can always borrow more free money
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and pay a higher price.
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Furthermore, the market has concluded
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that real rates will be low or even negative
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for a very long time.
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Now, the market could be wrong about how long
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these super low rates will be with us.
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It could also be wrong about the relationship
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between super low rates and other asset prices.
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But what is especially worrisome right now,
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is that in a downturn it used to be investors' best defence was
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diversification.
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Owning a mixed basket of different kinds of assets
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meant that some asset you owned would always
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be outperforming - at least relatively - at any given time.
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But in the recent rally everything
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has gone up together.
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And the rally has been explained by a single simple factor,
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low real rates.
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If that theory is correct, when the downturn comes
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there will be no place to hide.