OPINION14 April 2022

The view from the city

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Finance Opinion Trends

Lorna Tilbian discusses the increasingly tenuous grasp between economic reality and inflated asset prices.

coins on old fashioned scales

Towards the top of every economic cycle, ‘red flags’ emerge that indicate an increasingly tenuous grasp between economic reality and inflated asset prices. In short, the net present value of money diminishes and future growing assets suddenly command stratospheric prices, based on highly optimistic expectations of future growth. This gap between value and growth is the eternal push/pull between present (cheap) value and future (expensive) growth. Until, that is, the spectre of rising inflation leads to a rotation from growth to value, where a bird in the bush is worth two in the hand.

Legal settlements are made for sums that seem beyond the dreams of avarice. For example, a Spanish court awarded former UBS banker Andrea Orcel €68m compensation for Santander reneging on an offer to become its next chief executive, while $105m was clawed back from Steve Easterbrook, the former CEO of McDonald’s, for his failure to disclose the breaking of internal company rules on resignation. Princess Haya of Jordan, ...