As more data pours in showing the severe and worsening contraction of the global economy due to the impact of covid-19, it’s becoming increasingly clear that the only thing propping up today’s financial markets is the $trillions in rescue stimulus promised by governments across the globe.
Bloomberg estimates that flood to be in the range of $8 trillion – and counting.
Will it be enough?
Time will tell. But, for now, it has been enough to keep the markets elevated. As reported last week, the FAANG stock complex is back at an all-time high.
Here at PeakProsperity.com, we’ve long been critical of central banks’ upward influence on the financial markets, which prior to covid-19, distorted asset prices far higher than fundamentals justified and created accelerating inequity between the rich and the rest of society.
Those issues are now exacerbated by the abovementioned new $8 trillion, though there’s an important twist this time. The problems the central planners are trying to address aren’t easily solved by simply forcing liquidity into the system.
The world is experiencing one of the worst demand shocks in history. In America, more than 26 million workers have lost their jobs over just the past 5 weeks:
<img class=“aligncenter size-medium” src=“https://peakprosperity.com/wp-content/uploads/2021/09/MW-IF044_layoff_20200423084701_ZG.jpg” alt="“new jobless claims” width=“1320” height=“742” />Bankruptcies tend to follow layoff by three to six months, so we can expect to see a tsunami of business failures over the next two quarters.
Supporting this prediction, we can already see the massive drop in demand US businesses are experiencing the initial April Purchasing Manager Index:
The charts for Japan and the Eurozone look the same or worse.
Perhaps nothing exhibits the magnitude of the current global drop in economic activity more starkly than the price of oil, which went briefly negative earlier this week for the first time in history. While there are pinch points in the petroleum supply chain that amplify the pain when gluts like the one we’re experiencing now occur, it’s obvious to all that the sudden crash in oil price is simply due to a much lower need for it.
World economic activity is now some fraction of what it was just three months ago. (Exactly what fraction we’re still finding out).
More liquidity and loan backstops don’t necessarily translate into revenue, the lifeblood of business. And much of the global economy is currently experiencing a revenue crisis.
Less revenues, less earnings. Less earnings, fewer jobs. Fewer jobs, lower consumer demand. All of this argues for lower – much lower – stock prices.
So which side will prevail in the markets going forward? Reality or rescue?
As we’ve been doing throughout the recent market volatility, we’ve once again asked the lead partners at New Harbor Financial, Peak Prosperity’s endorsed financial advisor, for their latest perspective.
In the below video, they explain why their bias remains towards lower prices ahead, and why they expect the recent strength in both gold and gold mining shares to build from here, even if the overall markets resume their fall:
And if you’re one of the many readers brand new to Peak Prosperity over the past few weeks, we strongly urge you get your financial situation in order in parallel with your physical coronavirus preparations.
We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.
But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.
This is a companion discussion topic for the original entry at https://peakprosperity.com/market-update-the-battle-for-control/