Q2 2020: The unstoppable force
Philosophical Paradox and the Global Markets
One of the classic philosophical paradoxes is the unstoppable power paradox, which acts against an immovable object. Which will prevail? Philosophy has no definitive answer, but perhaps life itself will help solve the riddle.
After all, what we are now witnessing in the economic-financial world is the epitome of this paradox, and the powerful clash between the unlimited power and the unmovable object creates a host of interesting side effects, to the point of absurdity.
On the one hand, we are experiencing the deepest economic crisis since the Great Depression caused by a global epidemic that we have not seen since the Spanish flu a century ago. On the other hand, the unprecedented fiscal assistance of Western governments, along with the endless monetary support of central banks, are accumulating huge financial power, probably the greatest power in the world today.
The clash of fiscal and monetary power with the economic object immersed in the quicksand of the crisis creates enormous disruptions in the financial markets: the strong stock market rally, fueled by abundant liquidity and oblivious of unprecedented fall in profits; low-grade bond yields (“junk bonds”) that are not far from the historical average despite growing risks to companies, especially those with large debts, from the weak economy; or historically low yield on bonds issued by countries on the verge of bankruptcy – and rising demand for these bonds; or a jump of hundreds of percent in the shares of companies that declared bankruptcy … the examples are abundant.
If someone had said just a year ago that in the year 2020 there would be a global pandemic with economies going into lockdowns, which would result in the biggest unemployment rate in the modern era and the worst quarter of GDP contraction since World War II, and that stock markets would decline by 30% but within a few weeks would reach close to all-time highs – would anyone believe? a rhetorical question.
Also in the report (Hebrew):
- Stock Markets: Type Any Symbol to Continue
- EM Bonds: Risk Awareness is a Must
- US HY Bonds: Cautious and Risk-Aware Rally
- Global Economy: Negative Rates? Not in the States