Many have tried to second-guess when the next recession will strike since the global financial crisis, but none have been successful due to the interventionist policies of central banks, Jane said.
He argued markets are in for a period of stability, with bubbles only affecting single asset classes as banks are willing to step in to prevent any further crises with their newly-gained powers.
Jane said: “It looks much more likely that central banks’ holdings of securities will be used as an ongoing policy tool in order to smooth the economy and reduce volatility.
“We have argued many times since the global financial crisis that the central banks, having been given the power of direct intervention, are unlikely to voluntarily give it up. So, while central bank holdings are being reduced at present to dampen potential excesses, at the first hint of risk to economic instability they will surely be back using the tools they now have to avoid a crisis.”
Rather than expecting a reversion to a past era of boom and bust, investors should be looking at the opportunities that have arisen in the “cheap money era”, Jane said, pointing to the transfer of excess debt in the wake of the 2007 crash from the private sector to government.
However, he admitted while this protected jobs and homes, it left some investors concerned that the debt hadn’t been dealt with.
Jane argued the debt should be simply written off.
“The fact that one arm of the state owes money to another is largely irrelevant, so long as you don’t assume that the central bank must inevitably sell that debt on to the market,” he said. “So, rather than deal with the debt through default or inflation, it has been dealt with by monetisation, giving central banks a new stabilisation tool in the process.”
He dismissed the issue of so-called ‘zombie companies’ being kept afloat by an influx of cheap loans, and said while the “jury was still out”, new tools introduced by the banks could reduce the boom-bust cycle, or even eliminate it.
Jane said he remained on the fence over what the future held, but doubted it would fall to either extreme.
“We don’t see evidence that we are on the brink of a recession or that cycles have been eliminated,” he said.
“What we can see is that the current system leads to protracted periods of low volatility combined with asset bubbles in various asset classes that appear to inflate and then deflate, without huge implications more widely.
“While this may change, investors should remain vigilant but pragmatic, avoiding the greatest downside risks while participating in potential returns.”
