09.02.2020 – Special Report. New records on Wall Street, Bitcoin also sniffed fresh highs before the latest setback. Of course, it is the large amount of air money in the US that is pushing up prices: no sooner have the Dems passed the $1.9 trillion stimulus than news of the next money gift is circulating. Nevertheless, the monetary buffet is spoiling the appetite of some professionals.
New helicopter money for parents
According to a report in the “Washington Post”, millions of families and single parents with children under the age of six are to receive 3,600 dollars per year from the state. According to the Democrats’ 22-page bill, which will be introduced in the House of Representatives today, families with older children can look forward to $3,000. The benefit will be paid to singles earning up to $75,000 and to families earning $150,000. A few other small things are to become part of the bill.
The debt bubble is growing
According to the financial blog ZeroHedge, this further inflates the US deficit of 3.1 trillion dollars, not including the stimulus of 900 billion dollars from December. When is all this supposed to end? How much more money does America want to create out of thin air – and how much do the other countries in the world want to create with their stimuli? History teaches that air money flows into the stock market. But also into meaningless companies or zombie companies, or into mortgages supposedly serviced by solvent house builders. And at some point it goes “boom” and banks and companies topple over.
This is how an investment legend positions himself
It is interesting to hear how the legendary investor Stanley Druckenmiller, head of the Duquesne Family Office, analyses the situation. In a conversation with Tony Pasquariello, Global Head of Goldman Hedge Fund Coverage, which has only just been published, Druckenmiller said that what is currently being served is “the wildest cocktail I’ve ever seen in trying to figure out a roadmap”. In three months of 2020, the Federal Reserve had inflated the deficit more than in the previous five recessions (1973, 1975, 1982, the early 1990s, the dotcom bubble and the Great Financial Crisis).
And how has Druckenmiller positioned itself? Mainly like this: First, he’s short long Treasuries. Second, he is long commodities. Third, he is “very, very short” the dollar. He also owns assets from China, Japan and Korea. “Asia is the big, big winner coming out of COVID-19.” The People’s Republic, for example, has not borrowed so much from its own future and has kept the money supply low – M2 in China is at the same level as 3 years ago. Quite the opposite of the USA.
BTC is the child of the central banks
When asked whether BTC was the “mother of all asset bubbles or something genuine”, Druckenmiller replied “maybe both”. He doesn’t know the future, but one thing is clear: Bitcoin “wouldn’t do what it’s doing without central bank behaviour.” So we think traders and investors need to pay attention to the central banks: as soon as they stop flooding money, the flight into non-manipulable assets like cyber currency could be over. But can the central banks stop at all? The problem with the current (monetary) policy: it is addictive. Without the permanent doping, no equity gains. In the economy, the heroin of state support must not be allowed to fail, otherwise voters who were previously sedated by subsidies, government spending or helicopter money cheques will mutiny. But the sad truth is: it cannot go on forever.
The apocalypse is near
At least that is what another investment icon believes: Jeremy Grantham recently turned apocalyptic and warned that the bursting of this current epic bubble will be the most important investment event in our lifetime. In an interview with Bloomberg, the co-founder of GMO, who correctly predicted the last two crashes, said Joe Biden’s economic policies will drive stocks to dangerous heights, followed by an inevitable crash. Grantham literally: “We will have a few weeks of extra money and a few weeks of putting your last, desperate chips into the game, and then an even more spectacular bust.” He continues: “When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years.
Our conclusion: The warnings of a violent correction are getting louder. Trade the wave, but don’t forget that bubbles burst at some point. With ever new records and exuberant optimism, everything is set for a crash. If you trade CFDs, you should now first keep an eye on the 50-day line that the S&P 500 tested at the end of January.
Just before this setback, two investment banks called for profit-taking. Morgan Stanley said that the number of shorted shares and the wild speculation around GameStop was a clear sign that the stock market bubble was continuing to inflate. And Bank of America advised, in the face of all the optimism, “take some profits or other defensive measures.” The Bernstein Bank wishes you good luck!
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