Money doesn’t buy recovery

Since the March 2020 market crash, the money helicopter is working 24/7. Central banks’ narrative suggests that a strict monetary policy leads to slow recovery. The same rhetoric indicates that avoiding a massive crash in the stock market limits the negative consequences of an unprecedented economic downturn. But, can free money fuel the economy? If they cannot boost growth, then what is the value of money?

Prior to the coronavirus outbreak, most financial analysts were using terms like stagnation, deflation or stagflation. The quantitative easing was already in place and its benefits were not really very convincing. When the March market crash occurred, bankers had a panic reaction and experienced a flashback of the 2008 havoc. The only available tool to avoid a catastrophe on the stock markets was the money helicopter. Seemingly, central banks jumped in too soon with extra liquidity. Looking retrospectively, a healthy market correction could not hurt. The current stock indices would have been to more acceptable levels.

The Dow touched an all-time high, but there are no signs of sustainable recovery. Overall the developed economies contracted significantly in 2020 despite all support measures undertaken by policymakers. Let’s assume for a moment that 2021 does not bring the expected recovery of the real economy? What will bankers do with all the money floating in the stock market? It could accentuate social unrest and aggravate inequalities. Society could be divided between a small group of well-paid individuals working in listed companies and a vast majority fighting misery. Progressist governments are currently leading in most Western democracies, but they seem to forget the very basis of their doctrine. Massive inequalities in society hinder progress and this could lead to unexpected societal turmoils. Should we expect a new deal?

One says that money doesn't buy happiness. Without a doubt, one was speaking of the money of others. Sacha Guitry, French actor

Market overview

The leading stock indices bounced back into positive territory, while Bitcoin reached a new peak. President Biden is expected to sign a fresh new 1.9 trillion USD Covid relief bill, validated by the House of Representatives. This new package will keep the American economy under anaesthesia, waiting for an exit from the sanitary crisis. The new vaccines from Johnson & Johnson as well as the prospects of a Sanofi vaccine, bring some light on the dark street of economic recovery.  The volatility index retreated to a low level around the 20% mark, underlining that a grain of confidence starts to crystallize amongst investors.

Focus:

Lordstown Motors

Lordstown is not the name of a motorcycle club, but the label of an electric vehicle automotive manufacturer operating from Ohio. The company was founded in 2018 and soon was listed on NASDAQ. The pandemic outbreak bolstered Lordstown’s share price which experienced a rally after August 2020, despite a delay in the release of the first vehicle.

Short-seller Hindenburg research had the startup on its radar. They showed in a recent report that the manufacturer had no sellable product and that the demand orders presented to investors were far from being binding. The company has some production delays and is closer to running prototypes, than being able to deliver final end-products.

Commodities:

Why Gold is so cheap?

Since August 2020, Gold prices moved into negative territory, despite an increased appetite of retail investors for physical investments.  Over the past week, the ounce plunged below the support level of 1,750 USD, touching a 12 month low. The evolution is counterintuitive, many analysts expecting a real bubble in gold prices amid an unprecedented quantity of monies being printed since the outbreak of the new coronavirus. The House approval of a 1.9 trillion USD Covid relief bill brought a new wave of optimism, thereby hindering the outflow of liquidity towards safe harbour investments. It shows also that for most investors, cash is still king.

Commodities:

Oil is too expensive

We still remember June 2008 when crude oil barrel reached an all-time high around the 150 USD mark. After Lehman’s default, oil prices dipped abruptly, and the recovery took some time. Crude prices are at crossroads after one year of pandemic. The US oil inventories climbed 13.8 million barrels to 498.4 million barrels, thereby being significantly higher than the five years average. Meanwhile, the US storages of refined products are depleting and the market seems to anticipate a steep recovery in prices. With prices above 70 USD, the US shale exploration becomes profitable and Russia’s economy has some significant currency inflow.

Moreover, Saudi Arabia announced that its oil storage facilities were targeted by missiles and drones launched by a Yemen-based militia. With political unrest in the region, oil prices could go easily beyond 70 USD.  Is this the road to 100 USD?

Market outlook

Following a new stimulus pack approved by the lower chamber of Congress,  the Dow Jones ended the week close to 33,000. While a market contraction is still probable, the inflow of optimism makes it less likely to happen in the short term.

As predicted, Bitcoin rebounded above 50,000 USD, reaching a new maximum and has good chances to move towards 60,000 USD.

Crude Brent reached 70 USD and is following its positive trend which has started in the end of 2020. The increase in oil prices could anticipate an early recovery, but could also signal a foreseeable bull run in commodity prices.