18 12/20 18/12/2020

Good to Know

Individual current accounts have been sliding since May but are still relatively high compared to pre-COVID times. Thanks to the stimulus checks the U.S. government cut down back in March, liquidity increased significantly. The majority of the people were not quick to use the money and held to it as much as they can. Some even invested it in the stock market. What does this mean for the market? Despite the rally of the last month and a half, there is still a lot of money sitting on the sidelines. As economies recover and uncertainties lowers, some of this “excess” cash is likely to be put in the market.

This capital injection however is alarming. Governments and central banks around the world are doing whatever it takes to save the economy. The table above shows the monetary and fiscal stimulus from February till November 2020. The U.S. for instance injected $9.5 trillion in the economy in the given period. That is 44.3% of the country’s GDP. Where did all this money come from? All the monetary and fiscal stimulus must come from somewhere. It comes from printing more and more money. 

According to some, this out of control printing of money can lead to high inflation because too many money is chasing too few goods. On the other hand some believe that it can lead to a persistently low inflation that can lead to deflation. Deflation by itself might be good but not if it persists for too long according to some experts. They believe consumers will postpone some of their consumption for a later time because of the believe that prices will continue to fall. Either way, the high quality real assets we hold in your portfolio are mostly inflation-proof. These are assets that are essential in our day-to-day lives that cannot be easily substituted or postponed due to price movements. 

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