Which side will prevail in the markets going forward? Reality or rescue?
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:
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:
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