Why Do Stock Markets Keep Going Up From Their Recent Lows?

Dear Reader,

Global stock markets fell circa 30% when the coronavirus disease COVID-19 pandemic erupted. Since then they have been going up. Why? I think the main reasons are  the Federal Reserve and other global central banks and individual investors.

Large global central banks like the Federal Reserve, The European Central Bank, Bank of Japan have been printing money since long, but their money creation efforts intensified with the coronavirus disease development. The money printed by central banks finds its way into the global financial system through banks and brokerages, which bid up the price of stocks, government bonds, high yield bonds, gold and so on. Banks are using repurchase deals to get more leverage and are thus again in a high risk position.

An interesting recent development has been the entry into the market of millennials and sport betters. Investors, due mainly to the fact that they have not endured a real economic depression in their working lives, seem to think the market is on sale whenever stocks drop a lot. When stocks fall a lot, millennials enter the market and bid up stocks. What is more, sport betting fans now cannot bet on sports, since sport has been temporarily discontinued due to COVID-19. And sport betters have entered the market again pushing up the prices of stocks. The increase of millennials and sport betting new investors is reflected in the sharp increase of new online brokerage accounts at major brokerage houses since the beginning of 2020.

I think this is going to end up badly. Blowing up stock market, government bonds and high yield bonds bubbles in an economic repression is a way to disaster. When these bubbles burst, central banks will not be able to save the economy again, since global central banks have already spent most of their resources. We will live and see if this time it is really different, or human psychology has not changed since prehistoric times.

I must disclose that I am also a millennial.

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Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

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Respectfully yours,

Petar Posledovich