Opinion: US stock market to collapse since the dot-com crash29. Dezember 2020
The U.S. stock index S&P 500 set a new record, while the after-tax profit of its constituents plunged to its lowest level since 2009. According to analyst Michael van de Poppe, this divergence between stock prices and the real economy shows the preconditions for a move into a bear market.
This was typical of the situation during the dot-com bubble and shortly before the Great Depression of the 1930s.
The expert considers the convergence of the two curves to be inevitable „sooner or later“.
One explanation for the „disconnected“ from the real economy dynamics of the S&P 500 is the quantitative easing policy implemented by the Fed and other leading central banks around the world.
Since August until now the Fed has been buying $120bn of assets every month. At a meeting in December, rate committee members confirmed that the quantitative easing programme will continue until full employment is achieved and inflation returns to 2%. In August, Fed Chairman Jerome Powell said that the central bank was ready for inflation to rise above the 2% target.
In a new report, investment bank Morgan Stanley predicts that by December 2022, the Fed, ECB, Bank of England and Bank of Japan balance sheets will grow by $12.8 trillion, or 29% of their nominal GDP. In another illustration analysts note that in this regard the Fed is not at all a „champion“ – faster relative to nominal GDP „print money“ ECB and Bank of New Zealand.
Ultra-soft policies are distorting pricing in financial markets and pushing investors into riskier positions. According to FINRA, margin positions reached a record $722.1bn at the end of November.
In the cryptocurrency community, central bank policy is associated with the „Money printer go BRRR“ meme. It alludes to the active operation of the Fed’s printing press in the midst of a coronary crisis. The meme was the basis of an advertising campaign launched in August by Grayscale Investments.
Recall that MicroStrategy’s CEO, who has invested more than $1 billion in the cryptocurrency, explained the flow of funds into bitcoin as a reaction to the growing risks of devaluation.