The markets are held up by a fragile thread
When will the markets crash? Not yet. The stocks and the cryptocurrencies are overvalued, but not many investors are eager to sell. Some consider that the $1,9 trillion stimulus package will delay the trigger of the crisis for 1–2 months, but I have started to believe that the official onset will come at the beginning of the 4th trimester in 2021. Let us try to explain why.
Truth be told, the crisis has already started but we were so focused on the pandemic, the vaccines, and the lockdowns that we ignored its signs. Even now we are depressed from the lack of freedom and we don’t see the price increases, inflation, and economic degradation. This year we will regain our freedom and we will start consuming goods and services like in the good old times. So freedom will generate an increase in demand and stimulate the inflation rate.
We are going through a unique crisis
We see that inflation is here every time we go shopping and see the cost of our basket of goods, but the pandemic monopolizes us and the economic problems become secondary. People are focusing on regaining their freedom even if their protests can seem a little bit irrational. Day after day, we see protests against the lookdowns and the medical face masks, but not too many complaints about economic problems. We ignore the problems, the investors are still quite confident, and most markets are bullish in a world where most companies reduced their production levels, and even a small increase in the demand puts high pressure on the producers and determines an increase in the prices and the inflation rate.
Seeing that the public attention is focused on COVID and human liberties created the premises for the governments of the world to present their economic situations in a favorable light. The markets are flooded with cheap money and the officials spend their time bragging about their successes.
The governments will take advantage of the 2nd trimester
Most economies suffered from a harsh 2020, but the 2nd trimester from 2021 will look great because in statistics it will be compared with the similar period from last year. Comparing a decent trimester with one in which we were closed in our houses and most businesses were closed will look great on paper. The 2nd trimester of 2020 was the worst in recent history, with most economies closed and with a significant downsizing of economic activities. Although we are still far away from normal life and a decent level of economic activity, the 2nd trimester of 2021 will be for sure excellent compared to the one from 2020. In T2 2021 most countries of the world will have two-digit increases.
The results of the 2nd trimester will be presented by officials as great political successes and as validations of the economic recovery. The data will fuel the general perception that we are on a good path and will delay the panic phase of the economic crisis.
Also, we should take into account that the largest central banks announced that the reference interest rate will remain quite low, meaning that cheap money will continue to flood the markets. This means that in the next months, we can still mimic that the economies are working.
The masses will probably acknowledge the crisis at the beginning of the 4th trimester
To properly understand the implications of this crisis we would probably need somebody with solid knowledge in mass psychology. Unlike in other crises, the economic problems were not the main issues faced by the people, but the lack of freedom that frustrated them and became their main obsession.
As the vaccination campaigns advance we expect a strong recovery of the touristic sector in the 3rd trimester and the development of new niches in this area. The immunized individuals will start enjoying their freedom and engaging in activities that were partially prohibited in the last year. The additional demand will put pressure on the producers, the prices, and on the inflation rate and we will find out that the economy depends on human activity.
The recovery of the tourist sector, a solid increase in air travel and high demand for hotels and restaurants will empower the sensation that we are on a good track to economic success. The public enthusiasm will delay the onset of the crisis till the 4th trimester. Hopefully, at its recognized start, we will be ready to address it.
Seeing that the 2nd trimester will be presented as a great success and that in the 3rd one, we will be focused on vacations, this „dolce farniente” period will end at the beginning of the 4th trimester when we will start preparing for the winter. In September we will find out that the prices are higher, the number of jobs is smaller, and many companies are bankrupted. If the CEO of BionTech is right and in most developed countries the pandemic will end by autumn the miracle of cheap money will end.
The companies with smart managers are ready for this crisis
This crisis is strange but we will probably get through it faster and better than through the last one. We are all aware of it and we had time to properly prepare for it. In the last year, the market cap of many companies reached record levels. For any rational member of a board of directors, it was a great opportunity to increase the capitalization of the company. The smart ones have issued and sold enough stocks to provide them with the capital needed to go through the worst crisis.
