Jeffrey: Good and bad markets can easily turn ugly

Several features of the recession and financial crisis carried the label ‘extraordinary', not least the huge shifts in asset valuations.

Two years on, relationships between asset classes remain far from normal – normal, that is, as defined by what we became accustomed to during the previous extended period of growth. When looking at asset values, the starting point must be government bonds. Here investors have divided markets into the good, the bad and the ugly. The US, UK, Germany and Japan, among others, are considered good; in these countries, domestic fundamentals are either largely favourable or investors have been convinced by budgetary plans to resolve excessive borrowing. The bad are markets such as Italy and...