We have to forget the fundamentals in financial and real estate markets

Given the highly expansionary and very unconventional monetary policies, we have to forget the fundamentals when considering movements in financial or real estate markets. Given central banks’ control of long-term interest rates (yield curve control), they no longer depend on fiscal deficits, public debt or expected inflation; Given the negative real long-term interest rates and the abundance of liquidity, share prices can rise rapidly even if GDP and earnings grow slowly in the medium term; Given investors’ search for yield, as risk-free interest rates are very low, credit spreads may tighten even though an increase in corporate defaults is expected; Given the negative real long-term interest rates and the abundance of liquidity, the weak growth in household incomes, the rise in unemployment, and the reduced need for retail or office space will not prevent residential or commercial real estate prices from rising.