In the previous article I analyzed the stunning divergence between the markets and the real economy. I emphasized three particular reasons for why this is happening: (1) huge monetary and fiscal stimuli that started the V-shaped rebound on the markets in March; (2) exuberant (and by all means irrational) expectations driven primarily by the so-called retail investors, and (3) the asymmetry between firms driving the market (the top 5 big tech firms) vs the unlisted SMEs laying people off and declaring bankruptcies.
In this article I will touch upon the potential instabilities of the first effect: the monetary and fiscal stimuli, and how investors should adapt to these macroeconomic trends.
While the stimuli were designed to calm the market panic back in March, its continuation – particularly from the Fed – is creating massive instabilities elsewhere. Specifically, there is ample evidence of a growing monetary bubble, unavoidable fiscal instabilities due