So far, safe-haven assets and companies in certain sectors of activity - technology, online distribution of essential goods, renewable energies, mining companies ... - are the most interesting investments of the year.
On the negative side, oil fell by 38%, reaching negative prices this year, something that has never happened before: in a world controlled by central banks, anything is possible, even pay to sell!
The main stock market indexes in Spain (IBEX 35), Portugal (PSI 20), France (CAC 40), and Italy (MIB 40) recorded sharp declines, -27%, -21%, -17%, and -16%, respectively, especially the strong presence of commercial banking in the composition of these stock market indexes, as explained in a previous article.
In the case of the British FTSE 100 index, the 22% drop is due to the uncertainty surrounding the United Kingdom's exit from the European Union; so far, there is still no agreement.
Given the brutal rises in some financial assets, the next question is obligatory: what is the reason(s) behind them?
In a year in which unemployment is soaring, a biblical recession is announced across Europe, where thousands of small businesses are at risk of closing their doors in the coming months, in addition to those that have already closed recently, where their accounts are colored red - colossal public debts and endless budget deficits - how is it possible that there are meteoric rises in certain financial assets?
A few decades ago, before investing in the stock market, it was possible to explain the price movements of different financial assets through fundamental analysis, i.e., understanding the reasons affecting the supply and demand of a given asset.
In the case of company shares, we could count on several aspects to perform a value analysis, among others, such as:
- Management quality
- Technological leadership
- Expansion into other markets
- Increase in operating margins
- Revenue prospects
- Lower operating costs
- Cash flows generated by the company
For example, in the case of demand, the economic expansion of various regions of the world implied enormous buying pressure on oil, given the world economy's dependence on fossil fuels.
As an example, in the case of supply, we can mention the 1973 oil crisis, when members of the Organization of Arab Petroleum Exporting Countries (OAPEC) announced an oil embargo, which conditioned the supply of oil; as a result, prices soared.
And finally, in the case of currencies, it was sufficient to analyze a given country's public and monetary policies.
Countries with trade surpluses, controlled public spending, budget surpluses, and monetary policies aimed at controlling inflation had, as a general rule, a strong currency, i.e., one that appreciated on the Forex market, thus protecting savings denominated in that currency.
This was the case in Japan or Germany.
This whole world has collapsed in recent years: fundamentals no longer have any relevance, people start looking for how to save their investments using platforms like DotBig online broker. It has only come to matter whether the world's major central banks can deliver the dose of "cocaine" that the capital markets so badly need.
Like a drug addict, financial markets now demand increasing doses of monetary stimulus. Otherwise, they get "angry," and crashes ensue, as happened in the 2008 crisis or at the end of 2018 when the US Federal Reserve "threatened" to shrink its balance sheet and raise interest rates.
The proof that we are experiencing the largest financial bubble in history comes from the size of the recent monetary stimulus, something unprecedented and in the order of billions of dollars!
Central banks are now expanding their balance sheets by several trillion (12 zeros!) Euros (EUR), US Dollars (USD), British Pounds (GBP), or Japanese Yen (JPY).
The population is not aware of inflation, as this money supply is essentially channeled to the capital markets, to the real estate market, to player transfers, or, for example, to the purchase at auctions of old cars - see what happened to real estate prices in many cities around the world.
The still US president declared weeks ago that the election of the rival candidate would mean a stock market crash, given his announcement of tax increases - we already know the real purpose of that.
However, as I write, where his defeat seems clear, the US stock market has not stopped rising, giving a clear signal that public policy is absolutely irrelevant to the markets - the size of the methadone dose is all that matters now. The market is waiting for more stimulus; who is there matters little!
In the election week, where the outcome was already likely, the S&P 500 index, between the November 2 and November 5 session, rose over 7%, one of the largest weekly rises in 2020.
The Western economy, particularly that of the United States, has been a gigantic mountain of debt for many decades, a pyramid scheme that continues to grow exponentially.
Find more detailed information on the DotBig blog.