The Markets do not know the Crisis: “People will Wonder where all this Money comes from”

From Europe to Asia via the United States, stock market indices seem immune to the bad news that accumulates at the start of the year, layoff plans – Michelin, Accor, Ford, Air Canada – concerns about Covid-19 variants.

Wall Street crossed a new record at the beginning of January, in Germany the Dax is evolving at its highest historical level, the bitcoin has exceeded for the first time in its history the threshold of 40,000 dollars and the valuation of Tesla has reached the stratospheric level of 800 billions of dollars.

That the manufacturer produces less than 500,000 electric cars per year, far behind Volkswagen and its 9.3 million vehicles sold in 2020, does not seem to shake investors. Nor has the economic crisis discouraged IPOs, which broke all records on Wall Street in 2020, at more than 400.

“On the financial level, we do not see a bubble as such,” said Aymeric Poizot, managing director for France of the rating agency Fitch. “The disconnection between Wall Street and ‘Main Street’ (the real economy, editor’s note) does not pose a problem as long as central banks intervene,” he adds.

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At the origin of this disproportionate influx of liquidity, the decision of the central banks, in March 2020, to increase their support to the States to an unprecedented level, by massively buying back their bonds.

This policy, which the European Central Bank is expected to renew on Thursday at its monthly meeting, has had the effect of reducing interest rates to zero and consequently fueling the rise in stock prices, with investors rushing for profitable investments.

“On reading a large number of indicators, it is difficult not to see a certain discrepancy between the prices of risky assets and the economic outlook”, admitted however in December Claudio Borio, head of the monetary and economic department of the Bank for International Settlements (BIS), whose opinions are very popular.

“Monetary orgy”

Professor at EM-Lyon, Pierre-Yves Gomez is more direct. “There is a tech bubble,” says this economist. He believes that “digitization is behind us” and that as a result the valuation of Tesla, Zoom or even Amazon has reached its ceiling.

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But for the author of “The Malignant Spirit of Capitalism”, the danger goes beyond the financial bubble, fueled by the “speculative manna” poured out by central banks. “With States which are at the limits of their debt capacity, companies which no longer have much room for maneuver, the conditions for a systemic disaster, in the sense of the theory of chaos, are met”, he said. . Even if no one knows where the “spark” will occur ….

For his part, the economist Thomas Piketty never ceases to warn about the misdeeds of this “orgy of monetary creation” which “contributes to enriching the richest” by boosting “stock and real estate prices” for ten years.

Recalling, on his blog, that “the 500 largest French fortunes have gone from 210 to 730 billion euros between 2010 and 2020”, he concludes: “such a development is socially and politically unsustainable”.

Laurence Boone sees another perverse effect in this avalanche of cheap money: the risk of addiction.

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After the crisis “people will wonder where all this money comes from” and why we do not spend more to fight against climate change or inequalities, warned the chief economist of the OECD in early January in an interview at the Financial Times. “Popular resentment”, already high before the crisis, “will be much worse” after, she said.

“Valuations are high” on the markets, recognizes Gilles Moec, chief economist at Axa Investment Managers, but “this is part of the side effects” of the macroeconomic treatment of the crisis, and “to be sorry has no real meaning”.

Of course, “this benefits those who are carriers of capital and therefore has an undeniable effect on inequalities, but what would the state of the world economy be without what fiscal and monetary policies have done? It would be a real disaster” .

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