Conditions today mirror 2016, when growing weakness in the global economy and wobbling financial markets caused the world’s central banks to freak out. They responded by dumping more thin-air money into the system than ever before in history. It worked (for them at least). Economic growth stabilized; and the prices of stocks, real estate, and other assets enjoyed another three-year joyride.Similarly, as things started getting shaky in late 2018, the same playbook was deployed. Again, we have seen stocks rocket upwards ever since. But will the strategy actually work this time? It is unclear, and a lot is riding on the answer. In 2016, the financial world was falling apart. The U.S.dollar was spiking. Emerging market currencies were getting destroyed. The S&P 500 equities were exhibiting a classic head-and-shoulders formation, indicative of a coming plunge. The macro-economic outlook looked grim, too, with global trade slipping into contraction.
Then, everything suddenly turned around, as if by magic. Well, we now know that ‘magic’ was actually a massive quantity of monetary and fiscal stimulus pumped into the system by the world’s central banking cartel. Our concern is that the monetary and fiscal authorities are thinking that,since they were “successful” back in 2016, they can repeat the same strategy here in 2019. But can they? Maybe. Or maybe not.
You can access this week’s entire extended commentary HERE
