Thursday, 6th February 2020
All hail the real heroes who drove the markets to all-time highs….
Last week, former European Central Bank chief Mario Draghi was decorated with Germany’s Order of Merit….
This great honor (only 250,000+ people have been decorated this way since 1951!) was awarded to the septuagenarian for his leading role in rescuing the euro from disaster with his monetary policies at the height of the debt crisis back in 2012….
The Order of Merit is billed as the very highest tribute the Federal Republic of Germany can pay to an individual for service to the nation….
But is a tin medal and a bit of half-hearted fanfare in the newspapers really enough?
I believe not. And I’m not just thinking of old Mario Draghi when I say that….
- Honor them all….
Stock investors with skin in the global markets at any point over the last decade really ought to be having a mass whip-round to pay for solid gold statues to be built and erected in prominent places….
Statues not just of Mario Draghi, but also of the likes of Janet Yellen (former Federal Reserve chief), Mark Carney (outgoing chief at the Bank of England) and all the other central banking whizz-kids who had the ‘courage to act’ and save the world in the aftermath of the last global financial crisis….
Stock investors should be particularly thankful to this elite group because it is their expansive monetary policies (stimulus, inflation, liquidity – call it what you will) that drove markets higher and higher over the last decade to the unprecedented heights at which they now rest….
Desperate to avoid a financial catastrophe during the 2008 global financial crisis, central banks all over the world effectively fired-up the printing presses. Plain paper was fed into one end of the machine and trillions of freshly minted currency units emerged out of the other….
All the major central banks participated in this scheme – in the United States, in China, in Japan, in Europe, in Britain. It went on – and it continues to go on – all over the world….
What we have seen over the last decade amounts to the largest increase in global monetary units in the history of the world….
It is these trillions of new money that have found their way into the markets over the last decade – pushing stock prices ever higher and creating a 10-year-long boom time for stock investors….
Like I say, those stock investors really should be clubbing together to build statues of the central bankers….
- It’s down to new money….
Of course, a big part of being a politician is the taking of credit for things you had very little or nothing at all to do with….
Last time, I talked about how President Trump is engaged in that very charade right now – masquerading as the reason why the US stock market continues to fly as high as the highest kite….
He puts it down to the great American economy. And, of course, the corollary is that the great American economy is down to the great policies of a great American President….
But all of that is eyewash and snake oil – manna for the masses who don’t know any better and still take the office of President seriously….
Like I said last time, the American economy is doing no better now under Trump than it was doing before under the previous White House incumbent, Barack Obama – yet the markets have continued to hit fresh highs during Trump’s term in office….
It’s the same the world over. Business are doing no better in real terms. Entire economies are sleep walking into the future. Yet stocks are worth more than ever before….
Europe is flatlining. Just this week, European economists reported that the euro-zone just had its worst quarter in terms of the growth in the last 7-years. Growth has slowed to almost zero….
Japanese growth has been supine – and twitching – for a long time now….
The Chinese central bank is talking this week about adding more stimulus to the economy. For stimulus read more new money. The coronavirus is cited as the reason for this. But that’s not all that’s happening in China. The Chinese are also fighting a slowdown in growth and growth expectations….
Yet global markets show no signs of running out of steam or pulling back to any significant or lasting degree….
- Up, up, up….
The simple conclusion I draw is this: markets fly high whilst underlying economies and businesses struggle because one is no longer dependent on the other….
It doesn’t matter what economies do or don’t do when central banks are prepared to print money like there’s no tomorrow and very little left of today. The stock markets will go up anyway….
All that new money must find a home. And much of it comes to rest in rising stock markets where – for the last decade – it has only had to sit there biding its time and waiting for the next spurt upwards before being worth more than it was before….
It’s been easy. Easy money – printed by the central banks. And easy money for the stock investor – putting that new money to work in an ever-rising market….
That’s what tends to happen when the central banks turn on the printing – asset prices increase. Stock market investors are among those who do really well in such circumstances….
But something else happens too when the central bankers turn on the spigots and this other thing is not quite so good or so positive. People don’t like it quite so much – stock investors included….
This other thing isn’t happening yet. But it is coming. Make no mistake about that….
And when it does, there is going to be a disaster – a financial crisis to end all crisis….
More on how that is going to unfold next time….
Then I’m going to tell you how I’m going to protect myself and position myself to make the best of that bad forthcoming situation….
Until next time….
All the best,