The USA lives a few days more than convulsed with the riots that are taking place over the death of George Floyd, economic weakness and geopolitical risks from the new tensions with China, but the bags they seem immune to uncertainty. Wall street It “passes” all these tensions and continues to rise, and analysts say there is an explanation: it is due, they say, to the Federal Reserve.
“In many ways, the surge in actions when the military is about to be called is bizarre,” analysts at Rabobank say, referring to the threat from the US president, Donald trump, of deploy the National Guard and mobilize the Army to stem the wave of violent protests taking place across the country following the death of Floyd, a 46-year-old black security guard, at the hands of a Minneapolis police officer.
These experts acknowledge that it could be argued that Trump’s is just one more case of a ‘shot warning’ for certain sectors, and recall the, in their opinion, “infamous” quote from Baron Rothschild, who said that “the time to buy is when there is blood on the streets. ” However, in the Dutch bank they believe that in reality the explanation is much simpler. “Those in the markets know who is ‘to blame’ for stocks shrugging: central banks”.
And it is that, Rabobank points out, “His continued generosity ensures that it is almost impossible to suppress asset prices”. He refers to the Fed’s continued injections of money into the U.S. economy, supporting both consumers and businesses, and Jerome Powell’s promise that they will continue the stimulus. This has served to maintain the confidence of investors, who are guaranteed the profitability of most of the shares, thanks precisely to the continued promise of liquidity from the central bank.
“Markets have become addicted to stimulus. That is the key factor that will continue to drive risk appetite, as it did in the last cycle, “says David Spika, president of GuideStone Capital Management, while eToro analyst Simon Peters highlights that” the markets go up, despite the unrest in the US “, although he warns that protests may spark Covid-19 cases, which “could interrupt the recovery from the pandemic” that is so much hoped for, when precisely that optimism has been the “main force behind the recent increase in the stock market.”
POLICY CONDEMNED TO FAILURE?
Investors are very aware of the development of the disturbances that are taking place in the US, but the concern has not yet emerged due to the support of the Fed. However, in Rabobank they believe that central bank policy is “doomed to failure”, as has happened with its measures on inflation. The Dutch bank talks about the “dangers of socioeconomic inequality caused by a globalized and financed economy,” and says that it is in the United States that it occurs most “aggressively.”
“We live in a world rich in assets and poor in income, and this has not been censored, but celebrated by politicians, central bankers and most of the financial press,” say the experts of this firm, who point out that ” every time the system seems to be about to reset itself due to its own inherent contradictions and stupidities, and therefore asset prices move lower, central banks raise QE again – and now they even monetize the debt directly – to ensure that this cannot happen. And the markets cheer for it, “they say.
It is something that they do not understand and that they criticize at Rabobank because “The more QE we have, the worse things get in social and political terms”. This is what is happening in this Covid-19 crisis: “It is devastating the economy, pushing unemployment to levels of depression, cutting income, destroying small businesses and lifting global supply chains”, but “the rich and powerful they have become enormously richer and more powerful in both nominal and relative terms. They win, cross, you lose. Until we all lose, “they conclude.