However expensive the market is, the reality is unmistakable, the avalanche of liquidity overrides any lack of common sense that may exist in the market, as has occurred in all the bubbles that preceded significant corrections, but the system is a living mechanism, not it is stuck in time and throughout its history, the market fundamentals have evolved, creating problems and opportunities. When it is the big obstacle, as for example the financial crisis of 2007/08, we talked about the end of the financial system as we know it and that today, however, is just an episode in history, but that left the seed for a fundamental disruption in the stability of the demand and supply binomial.
In effect, the entry of central banks on the scene, with their stimulus programs increasingly expanding in value and intrusive in niche markets that belonged to the private sector, created a snowball that never stopped rolling, increasing with the crisis of European sovereign debt and more recently with the COVID-19 pandemic. This new variable is still unknown today as to the institutions’ ability to withdraw it from the system, not least because, as already happened in 2018 and this year, the simple fact that there is the possibility of a normalization of monetary policy, leads to strong negative reactions, that for now, even the prospects for strong economic growth cannot eliminate.
In short, there is a very difficult dilemma to solve, at least in the medium term, because in the short term the music will be the same and with the liquidity increasing, as is predicted for the next six months, the Bears will hardly have room to push the market for a correction, and it is not by chance that the falls and recovery of March 2020 were the fastest in history, since despite the panic with the most daunting prospects for the economy because of the quarantines. Once again, the prospect of more liquidity, both monetary and fiscal, was enough to quickly reverse the negative sentiment, not least because this also meant, in addition to more buying power in the market, a scenario of a few more years of dovish mentality in the world of banks the fruit of election for the Bulls.
