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When the markets turn upside down it will happen quickly and violently

In repeated reviews, the statement that the stock market is the best place to invest because it is still possible to get a high return, but when the markets turn around - it will happen quickly and violently, as the "ammunition" of central banks is almost depleted and governments reach high deficits

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• Wall Street

Ofer Nargassi

Wednesday, 30 December 2020, 09:54

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At the beginning of March, the stock markets and corporate bonds were in freefall. Fear of the mysterious corona virus dominated the markets, and stock indices were cut to prices that reflected excessive pessimism. And mainly corporate bonds).

In a column published in Globes at the time, I wrote that this was probably an "opportunity of the year," and I did not know how true that was.

Since then, the markets have risen sharply: the S & P500, which for me leads and represents the "markets", has risen by about 67% from the bottom it recorded at the end of March, and the Nasdaq index has risen by 88%. And

I think

we'm still at the

Uber shooting level again today, only this time it's on the expensive side of the scale. This is mainly reflected in risk asset pricing: stock markets are priced at a multiplier level that has not been observed for many years, while in some sectors - The pricing of companies reflects very high growth, and over many

years.Another example - the boiling IPO market, where "every broom shoots" at high pricing, which usually becomes much higher immediately after the company starts to trade R. and the new / old gold - Bitcoin, whose price Reached about $ 27,000 (100% increase in less than two months), but as in stocks - the herd rushes and buys, and the bubble swells.

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Rescue packages and "stupid money"

The main reason in my opinion for the sharp rises is the endless money printing of the central banks in the world, which creates in investors a sense that they are protected from declines;

Any slight correction in the markets entails another "rescue package", a new and enlarged "purchase plan", or a serious statement from the Minister of Finance / Governor of the Bank / President that he intends to promote a move for further assistance, one that has not yet been thought of.

Other sub-factors for euphoria are of course the long-awaited vaccine for corona, which has arrived and with the help of the name will remove from us the health threat;

Weakness of the US dollar - led by money printing and statements by the central bank (Fed) that interest rates will remain low for a long time;

And unimaginable fiscal incentives on the part of the US administration - which support the stock market there (at the expense of other markets such as Europe, Japan and the UK, where the strong currency against the dollar is actually hurting the recovery in the markets).

And lastly - the "stupid money" that went into the stock market and intensified during the Corona period, through trading sites (which I think are more like gambling sites), where stock prices are inflated by recommendations some of which are self-interested, and investors flock, and meanwhile profit.

The supply of cheap money is not expected to stop soon

In the reviews I read towards 2021, the statement is repeated that the stock market is the best place to invest, because it is still possible to get a high yield, compared to government and corporate bonds - which are traded today at low yields and stocks. This is mathematically true. Limited, when stocks can rise further and further), but keep in mind that in the stock market the loss may be much more painful.

How long will it last?

There is no answer to this million dollar question, as the supply of cheap money is not expected to stop any time soon, so the process may take some time (in my estimation, one of the triggers for change may be budding inflation in the US). December 2018 and March 2020?), And may be even more aggressive as the "ammunition" of central banks is almost depleted, and governments have also reached high deficits that will make it difficult for them to help.But the

economy - it will recover more slowly than financial markets, and eventually nothing economy wins. the value of companies on the stock exchange should reflect the cash flows they will generate from now on, and some (too big for my taste) of the current value already reflects an excess of optimism about the future.

Is matching markets to economic reality will occur at -2021? as they say in these parts - "Time will tell The

author is a member of an investment committee in an insurance company

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