Capital Market Line: Rising 'Animal Spirits' Usher in a New Regime
Post-crisis regimes result in private sector deleveraging and spikes in regulations, both of which slow growth. The latest post-crisis recovery was no exception. Yet markets did surprisingly well, the result of extraordinary and unconventional monetary policy support that more than offset the slow fundamentals. Then, in 2016, a choppy period ensued, whereby the disinflationary slow-growth, yet favorable market regime ended without being replaced by another. Fortunately, a new multiyear regime appears to be falling into place as we enter 2017, one of faster growth yet less accommodative monetary policy.