Following on from Friday's post, here is a piece at Project Syndicate which argues that the markets don't really understand QE and that stocks are actually cheap! The fallacy in this article is that as QE hasn't affected monetary growth, its ending will be a non-event. However, QE has affected asset markets as central banks have bought huge amounts of government bonds, which distorts yields on bonds and the real rate of interest. The ending of QE will drive bond yields and the real interest rate up. Increasing bond yields makes the bond market more attractive and, as a result, money flows out of the equity market. An increase in the real interest rate reduces the present value of future cash firms generated by companies, which can only lead to falling stock prices.
The Berkeley Earth Project , an independent study of global warming, has found that the earth has become a degree warmer over the past half century. However, the statistical uncertainty surrounding pre-1920 estimates makes it very hard to say much about long-term trends - click here for graph . This is one of my concerns with the global warming debate - we simply don't have trustworthy long-run data which looks at temperature changes over the last millennium (or two). My second concern with the global warming debate is that it is very hard to prove any sort of casual link between global warming and human activity. The scientists may be able to show correlation between global warming and our production of carbon dioxides etc., but correlation is not causation. My third concern with the debate is that those who are sceptical or agnostic are stereotyped as flat-earthers or intellectually-challenged crackpots. This only stifles debate and the progress of science itself.