Reset, Reload and Reopen
Over the last year, we have all heard about the “Great Reset”. This concept that seems more appropriate to be a movie title in the “Mad Max” series, ignites ardent debates amongst economists. Reset of the debt, rest of the fiat currency, reset of the wealth? There are many things to reset and they all have different impacts on the financial markets. What a “market reset” would look like?
When the “great reset” comes into discussion, an averagely informed person expects a sudden change that would radically change the state of economy and finances and have significant repercussions on the day to day activities. Nevertheless, a reset could come in many shapes and forms including a gradual drift toward a new economic reality. Data shows that the US economy is currently doing better than expected, delivering a strong growth in the first quarter. Moreover, inflation levels are relatively low. Everything seems under control and the US reloads its system preparing for a fully fledged reopening.
But, is it reasonable to compare the current growth in GDP with the pre-pandemic levels when there was 25% less monetary mass in circulation? In fact, the term growth lost its meaning amid the undeprencented quantitative easing.
Economic growth was the key principle of traditional economics. The reset is
in fact a change of paradigm from the classic economic precepts. The
current state of the economy underlines a growth rest, whereas a zero growth
economy is under horizon.
The only thing which seems not to be reseted is tax. Developed countries plan a consistent increase of tax rates, which will ineluctably lead to a wealth erosion over time.
The stock market is booming, but let's not forget the “bird in hand theory”. What you will have in your pocket at the end of the day and what you will be able to afford?
The pandemic represents a rare but narrow window of opportunity to reflect, reimagine, and reset our world. Professor Klaus Schwab, Founder and Executive Chairman, World Economic Forum
The US economy is delivering better indicators than expected, and the stock market is reflecting this outcome by reaching a new all time high. The first quarter delivered a consistent growth, thereby erasing almost all losses generated by the pandemic. Unemployment contracted significantly reaching pre-pandemic levels. The reopening will support the economic recovery, thereby being a strong support for the stock market.
On the other side of the pond, the Eurozone shows signs of weakness, the EU’s economy entering a double-dip recession. The British variant kept most EU countries under lockdown, thereby hindering the recovery.
The COVID-19 pandemic and the resultant efforts to tackle its spread have
significantly contributed to the development of new therapies leveraging the
mRNA technology. Pfizer and Moderna pioneered the use of mRNA in their
vaccines that have the best performance amongst their peers. COVID-19 may or
may not reset the world’s finance, but for sure has rested the prejudice
against therapies using genetic engineering. Brooklyn ImmunoTherapeutics LLC
is a startup surfing on this wave and has acquired an exclusive license for
mRNA gene editing and cell therapies technology of Factor Bioscience Limited
and Novellus Therapeutics Limited. The license encompasses a patented
process to develop gene-editing compounds using mRNA, which could be used to
cure cancers, blood diseases and other rare diseases. The preclinical test
suggests a high degree of efficiency, and that the technique does not
generate non-immunogenic and non-mutagenic effects. Brooklyn’s share had a
massive rally, its price increasing ten times.
Apple is bigger than the pie
The global shortage of computer chips enters its second month and ravages the production capacity of many industries. The automotive manufacturers including Ford, BMW and Honda took a significant hit and had to reshape their supply chains to cope with the chip crisis. Apple, the global leading supplier of smartphones is also struggling amid a surge in demand for iPhones. This could be a make-or break moment for Apple in the rough competition with Samsung. The Korean company has the advantage to also be a chip producer, thereby being less exposed to the current crisis. If Apple mismanages to fulfil their orders demand amid reopening, its share price could move into negative territory.
Copper is the new Oil
Copper prices are near an all time high. The steep rally of the bellwether
metal comes at a moment when other precious metals including Gold are
stalling on the market. Why are investors rushing for copper? The price
increase amid the pandemic outbreak is based on the anticipation of a
foreseeable surge in demand. The decarbonisation of the economy promoted by
the Biden administration would require without doubt more copper for the
electric vehicles and the underlying infrastructure. Therefore, the market
is betting on this scenario that has fueled copper’s stunning rally toward
its highest level since 2011. Nevertheless, there are not yet any signs of
increase in the real demand of copper and the current bubble could easily
The Dow Jones ended the week below 33,800 after having a short episode on Monday above 34,000. The stock market is boosted by good US economic data. After dipping below 50,000 USD, Bitcoin managed to stabilize its trajectory around 58,000. Bitcoin is in a risky spot and needs to quickly find a second wind, thereby avoiding a foreseeable contraction.
Brent Crude remained in the same price tunnel around 65 USD, and the likelihood of a further price progression faded away despite a foreseeable accelerated economic recovery.