Every four years the noise in the market about who the new president of the United States will be is inevitable, however, it is always more smoke than fire. In reality, the political rhetoric of the campaigns is nothing more than that, talk to try to convince the electorate and regardless of who occupies the top place in the largest economy in the world, the music that the market listens to is far above these momentary noises. And if until the financial crisis of 2008 the sound that investors wanted to hear was very much about interest, after opening the Pandora’s box of stimulus packages, music is another. This is because, in addition to the traditional interest rate tool, central banks have become gigantic machines for creating easy and cheap money, which inevitably results in an overvaluation of the market due to the simple reason that there is more liquidity to invest, it is as if all people in a city were entitled to a millionaire bank loan and were to spend that money on the most diverse purchases, which would cause inflation in the prices of products. The problem is that one day it will be time to repay the loan and it is that day investors today want to postpone, even if it means that people borrow more money, that is, the snowball continues to increase.
Today it is quite clear that the market is completely dependent on the liquidity bubble, and the best example of this was the instant correction in 2018 when the FED indicated that it would begin to normalize monetary policy, namely with the end of the stimulus program and the rising interest. With the pandemic of COVID-19 and the consequent economic crisis, central banks opened, even more, the range of tools at their disposal, entering into the anything-goes chapter, this time the FED should innovate by financing citizens and non-financial companies. And in the end, what matters is that the next few years will be a continuation of the extremely dovish policy on the part of the main central banks, so it is a little indifferent who will sit in the chair of the oval room, however investors do not appear to be here and now they are waiting for another fiscal oxygen balloon, which will eventually arrive, whatever the outcome of the elections, but it remains to be seen how this story will end when it comes to closing the liquidity party. However, it is important to highlight the fact that the US currency is not suffering from the huge increase in the money supply in the system, since all over the world this is the new normal.
