Pandemic vs the Central Banks

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In a year when so much went on, I think one of the more surprising items is how little economic pain actually showed in global equity markets, particularly in the US. To be sure, there was an aggressive knee-jerk reaction in February-March that saw about 1/3rd wiped out from US equity indices. But, that pain was short-lived as a very aggressive FOMC, along with some help from the Treasury department and Congress, were able to buoy markets until, eventually, US equities climbed to even higher all-time-highs. The fact that stocks drove to fresh all-time-highs in the midst of a global pandemic, with much of the world slowed or shut down, or sheltering in place, will always be surprising to me.

But, with that said, the economy and the stock market have been divorced for some time, and the argument can be made that this has been somewhat the case ever since the response to the 2008 Global Financial Crisis. My top lesson this year is to know that central banks are fairly committed here, and in many cases, are very stretched with accommodation. But, I’m not expecting the Fed or the ECB or the BoE to, all of a sudden, get all prudent. Central banks have been using soft money policies to offset a lack of political (and fiscal) action for some time, and this is unlikely to just end on its own. What is more probable is that central banks are going to continue to push until they can’t any longer, and this likely won’t be some sudden choice that they make, but rather an option that they’re forced into.

This keeps themes like the long side of gold or silver, or perhaps even cryptocurrencies as attractive. That is because we probably won’t be seeing higher rates until central banks are forced into offering markets less accommodation by tightening their risk outlay.

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— Written by James Stanley, Strategist for

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