Don, and what would the transmission mechanism be between Monetary and Financial markets?



Not all assets are inflated, yields are flat and we don’t see many traditional signs of exuberance, like IPO’s and M&A. Governments can issue debt at 0% which is a sign of healthy demand for riskless assets, also in market exuberance moments interest rates go up, not down…



What you suggest isn't possible, there are no direct mechanisms between both markets, nor is it verifiable since interest rates are staying low and banks aren’t investing in the stock market. Risk premia is still very wide, and money velocity still very low.



What IMO we are/were witnessing is another sign of liquidity preference/risk avoidance, in the sense agents started considering blue chip stocks a close substitute for sovereign debt. It makes sense if you are more concerned on trying to avoid losses than to make money, to go long on blue stock companies.

