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Richard Harris

The View | With stock markets decoupled from economic reality, the only way may be down

  • Will central bankers take away the liquidity punchbowl that is decoupling asset prices from economic reality? It seems unlikely when they insist there is no sign of burgeoning inflation
  • However, most workers would tell a different story amid rising shopping costs and stagnant salaries

Reading Time:3 minutes
Why you can trust SCMP
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The price of both Bitcoin and Tesla has gone through the roof in the past year. Photo: Reuters

As we all know, past investment performance is no indicator of future performance and, unless you are blessed with superhuman clairvoyance, market predictions are worth about as much as a used vaccination needle.

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Market behaviour is so complex that there are no real market analysts – the best are merely gifted amateurs, so if you do follow an oracle, just be aware that they also have feet of clay. 

The reason for looking at market performance at the moment is that it was this week, a year ago, when we hit the bottom of the most severe stock market meltdown since the global financial crisis. Some of the moves exaggerated by that “base effect” show how illogical asset prices have become.

The market meltdown of a year ago came as professional investors correctly realised that Covid-19 lockdowns would cause massive economic value destruction.

Indeed, growth figures for 2020 have been shocking. However, the mistake that these very clever people made was to underestimate the determination of the global authorities to avoid recession – at any cost. 

01:33

China’s economy accelerated at end of 2020, but virus-hit annual growth lowest in 45 years

China’s economy accelerated at end of 2020, but virus-hit annual growth lowest in 45 years
That was pretty dumb, for policymakers have long been utilising quantitative easing, printing money while at the same time denying it. Combined with zero-interest-rate policies, central bankers have been paying economies not to slip into cathartic recession.
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