Gabor Steingart’s morning briefing – controversial, critical and humorous. Knowing what is being discussed politically.
Good morning, dear readers,
the financial markets are in mourning – and that’s not because of Putin and not because of Greta Thunberg; even Corona is completely innocent. Investors in the financial markets are suffering because the man in the White House is waging a covert war against them. At least that’s how they feel.
Just as Putin can turn the gas tap on and off again, the American president can play with the money tap. Its ammunition is called dollars and the Fed is its ammunition factory. As long as this continued to supply the international markets with new liquidity, prices shot up. Since the ECB followed suit, the European financial markets also rushed in the direction of the rooftop bar.
The dual mandate of the FED
So now the turnaround. You have to know that the Federal Reserve Bank – unlike the European Central Bank – was given a so-called dual mandate. This means that FED chief Jerome Powell has to take care of monetary stability, on the one hand. And on the other hand, he has the duty and obligation to support the government’s economic and social policy goals – in particular the goal of full employment. This makes him Joe Biden’s most important man.
And with the US President currently facing a 7 percent currency devaluation, things have slipped. Ordinary Americans are suffering and the Democratic electoral pool is shrinking. And as it melts, Biden and Powell are chasing liquidity even harder. In their intention to slow down inflation, the money supply is to be turned off again after years of excessive money flooding.
- Three to four interest rate hikes within this year have been announced, which will make investors’ investment money more expensive. The big players are expecting at least one further interest rate hike. back – towards zero. And as if that weren’t enough, there is also the consideration of throwing the previously purchased bonds, which are currently owned by the central bank, back onto the market. After years of money creation, called “quantitative easing” by the experts, the money shortage, that “quantitative tightening”, would be practiced. After the carrot comes the stick.
The vigor with which Biden and Powell want to bring about this course correction has spooked the markets. Like the milker with the cold hands, the two of them grabbed the cow’s udder, whereupon she stopped producing milk. The prices of all relevant American stock exchanges have collapsed dramatically in recent weeks:
- The NASDAQ lost 15 percent of its value in January, taking $2.9 trillion in monetary value.
- Former stars like Tesla literally fell to their knees, minus 18 percent translates into a market value loss of almost $ 300 billion since the beginning of the year.
- Funds like Cathie Wood’s, which had backed its growth stocks, are just a shadow of themselves. The “Innovation ETF” – Wood’s flagship – has lost over 30 percent since the beginning of the year.
The boss of the bank-independent analysis house DJG Kapital AG Stefan Breintner says:
“We see a liquidity-related correction. The market’s fear is based on the fact that the central bank balance sheet could be reduced even more than expected.”
But most investors don’t believe in the great stock market crash. Again, that’s down to Joe Biden and the Fed’s dual mandate. The politicization of US monetary policy is making it easier to start backing out again. Once the negative effects of the liquidity squeeze hit voters, who are suffering not only from inflation but now also from the collapse of their asset values, improvement is in sight.
Conclusion: Everything has always been conceivable on the stock exchange, including the opposite. Shareholders should not be afraid of the political rollercoaster ride, but relax. Eugene Ionesco, an important exponent of the theater of the absurd, knew why:
“Those who have become accustomed to the absurd will find their way around very well in our time.”
I wish you a vital start into the new day. I greet you warmly,