This east flood is not yet as joyous as we all had hoped it would be a few weeks ago, and the past year was indeed joyless.
The lockdown may wear off, but it is painfully slow. However, Easter is both a time to ponder and celebrate, so we have a little more time to ponder the strange time we’ve been through and what might be next. This is a financial and an economic story.
The financial story is pretty extraordinary. From a location other than London this is a raging bull market.
The new normal? This east tide is not yet as cheerful as we all hoped it would be a few weeks ago
On Thursday, the S&P500 index shot through 4,000, another all-time high. It is the world’s most important stock index, the 500 largest companies in America.
It took nearly five years to go from 2,000 in September 2014 to 3,000 in July 2019, less than two more to break that final barrier.
In Germany, the DAX index, the 30 largest companies traded in Frankfurt, crossed 15,000 for the first time on Wednesday and ended at 15,107 on Thursday.
The Paris CAC index was within a whisker of its all-time high of 6,103 despite the recent economic downturn.
Things are different in the UK as UK stocks go out of style. Sooner or later global fund managers will dwell on the prospect that the UK economy will look like a spiral spring this summer, but there is now a massive investment opportunity.
So says Richard Buxton, the vintage fund manager who leads the strategy for Jupiter Asset Management. He believes this is the best time to buy UK stocks in 30 years. I think he’s right. Britain aside, the story is one of foam. You can see it in these record highs, but until recently even more so in private equity, where every new loss-making start-up was pushing investors to step in.
The concept of a Spac or Special Purpose Acquisition Company is a symbol that too much money pursues too few opportunities. If you don’t follow such a thing, all you need to know is that a spac is a shell company that was set up to raise money from the public to buy another company.
It doesn’t matter and doesn’t sell anything. All it does is find other companies to merge with and go public. People who buy their own stocks don’t know what their money is going to be used for.
If that sounds a little seedy to you and me, more than $ 90 billion has been raised so far this year. Even Sir Richard Branson has one called VG Acquisition Corp. founded.
But the mood on Wall Street has cooled in the past few weeks. Mainstream company stocks hit new highs, but the IPOX SPAC index is down more than 20 percent.
A sign of a return to sanity? I dont know.
Here on this side of the Atlantic, we’ve escaped the wild excesses of New York City. You could see the bleak reception of the Deliveroo floot last week as a sign that London is not a good place to start a high tech business.
Or you could interpret the flop to mean that British investors are less gullible than American investors and do not believe in the hype of a company that depends on gig workers and the unusual demand for delivery services in lockdown. My feeling is that it’s the second rather than the first.
In any case, a pause for reflection is required.
We know from history that the foam will eventually be blown away, but we don’t know how or when. This will be the next chapter in financial history.
Economic history is a lot simpler. There will be an enormous jump in demand in the second half of the year. That will be universal. The size will vary, with the US at the top.
The timing will vary as the US and UK are six to eight weeks ahead of Europe thanks to the faster adoption of vaccines.
Much of the emerging world, aside from China and perhaps India, will recover more slowly. But in autumn the stragglers will be fine too.
This is a great consolation that really needs to be celebrated at Easter. But to celebrate that, let’s think about something else.
As markets boom and economies open, we should try to be sensitive to the losses that many have suffered, both financially and humanly.
And we should try to learn to do better next time.
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