“The consequence of the Pandemic has been to deepen the existing distortions. The result has been the extraordinary apparent “resilience” of the stock and bond markets. It doesn’t feel remotely real:
“- We can see it in the widening disconnect between the real economy of defaults, job losses, food banks and crashing educational achievement versus massively inflated financial asset values in stock and bonds.
“- We can feel it in the way markets demand further stimulus and are being driven primarily by the massive amounts of money sloshing around financial markets (rather than the real economy).
“- Our sense of financial reality feels battered. Investors act on the basis of ongoing distortions fuelling prices are permanent and irreversible. Fundamentals are out the door. Its spawned and reinforced the dangerous belief that this time is somehow different and prices will go up for ever.”
“Markets are going up on retail and ill-informed bluster.
“- The consequences multiply: while everyone talks about how the Pandemic is accelerating the adoption of new technologies, capitalism is failing to discipline failing unprofitable zombie companies which linger too long and block new niches.
“- The consequences of an economy split between a very small number of haves and rising number of have nots, and rising inequality, has fuelled political populism – although Trump has come undone in the States he has massively destabilised the political consensus and rocked democracy for decades to come. Next year we have Germany and France, either of which could rock Europe.
“- The reality next year won’t suddenly change. Stocks will likely remain massively inflated. Bond yields will remain frighteningly low with $18 Trillion of debt now trading at negative yields. Sentiment and expectations will be lifted by the improving vaccination news – but the fundamentals of markets versus the economy are unlikely to be addressed.
“My view is financial assets will remain fundamentally distorted and increasingly vulnerable to correction. I’m sticking with a healthy weight of gold and looking for alternatives.”