Stocks and Bitcoin on the hunt for records: do not ignore risks carelessly

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It was an extraordinary week on the financial markets, but from a positive perspective: the Dax and MDax reached a new record high, as did the US indices Dow Jones and S&P 500. Bitcoin also reached its highest level of all time at more than 40,000 US dollars and the Japanese Nikkei index was as high as it was 30 years ago.

All within a week, but the financial market is also doing well in the long term. Despite the sharp fall in spring, 2020 was a success: The S&P 500 climbed 16 percent, the US technology exchange Nasdaq even rose 42 percent. The Dax was still four percent in the plus.

The gold price also rose steeply until the middle of last year: From 1,160 US dollars in summer 2018 to almost 2,075 US dollars in August 2020. Since then, the gold price has fallen by around 200 US dollars, but it has been parallel for a long time Striking upward trend in various asset classes. Investors cannot put enough risk into their portfolio. “The explanation for this is the lack of alternatives,” says Christian Buntrock, portfolio manager at the Bremen asset manager Solvecon Invest, in an interview with “Many investors wonder where to put their money and can no longer find attractive returns on bonds. In addition, the many aid packages from governments and central banks are already being anticipated on the stock exchange, ”he adds.

In Asian countries, consumption picks up immediately when Corona takes a back seat

The hope of the stock exchange traders lies in the summer, when the number of people who want to be vaccinated has increased significantly. How the economy could then go on is shown by developments in countries that already have a better pandemic situation. “A look at Asian countries such as China or Vietnam and New Zealand shows that consumption and production pick up immediately when the pandemic takes a back seat. This reaction can also be expected in Europe and the USA, ”says Buntrock.

The fact that the gold price rose until the middle of last year and is now consolidating at a high level seems somewhat surprising. After all, the precious metal is seen as a currency in crisis, which mainly benefits when there is turbulence on the stock market. On the one hand, however, the low interest rates also attract many gold investors. “At the same time, it also serves as insurance. Some investors do not trust the year-long zero interest rate environment and are building up their gold holdings as a hedge, ”explains portfolio manager Buntrock.

Even the risky investment Bitcoin attracts numerous investors. If there are temporary setbacks during the steep rise, investors are immediately ready to buy and thus prevent a major crash. But this development, that all asset classes are rising in parallel, is perhaps a nice picture for many investors at the moment. But it also harbors dangers. “It is a scenario that in the event of turbulence on the financial markets, all asset classes could fall,” warns Buntrock. If post-corona hopes are disappointed or if the economy and consumption take unexpectedly longer to recover, all asset classes are likely to come under pressure at the same time. “But it is also possible that in this case there will be a sideways or slow downward trend and the year 2021 on the stock market will be more unspectacular than many think.”

In the worst case, the US Federal Reserve could buy equity ETFs

On the other hand, perhaps the most boring is also the strongest argument for the fact that the markets are not protected from setbacks – even violent ones. But the lack of alternatives in investing quickly brings savers back to the stock market. “Even if there are major setbacks, investors continue to wonder where to invest their money. This is one of the reasons why there was a relatively quick recovery from the lows in March of last year, ”explains Buntrock.

Therefore, he does not expect the prices to fall sustainably and sharply. At the same time, a so-called black swan can always occur, i.e. an unforeseeable event that triggers a price fall. But then there is still a market participant for Christian Buntrock who would step in in that case. “Should there actually be a sustained, powerful crash – for reasons that have not yet been assessed – it is conceivable that the US Federal Reserve will also buy equity ETFs in order to support the financial market in this way,” he says.

So far, the central banks have been operating globally with an ultra-loose monetary policy. Low interest rates and billion dollar bond purchase programs have been the standard practice in recent years. The Bank of Japan is already doing this: it spends 12 trillion yen (95 billion euros) annually on buying index funds on stock indices. In response to the pandemic, this means twice as much as before.

Consumption in the US is heavily dependent on the stock market

Buntrock expects the central bank in the USA in particular to jump quickly to the side of the financial market. There, consumer consumption is much more closely linked to the one successful stock market than in Germany or Europe. “If the prices rise and the US consumers’ portfolio looks positive, they are ready to spend more money. However, they also save more when prices fall, ”explains Buntrock. “This reluctance to consume accelerates the trend of falling prices, which is why the central bank wants to break this spiral quickly every time.”

However, this is currently still a scenario for the future, because the spiral in the financial markets still only knows the way up.


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