Dow Jones peak and lessons from the crisis

Dow Jones made its life-time peak on 12^th Feb 2020 with the closing trade of 29551. Yesterday Dow closed at 29428, tantalisingly close to its all-time high. So, if we consider US markets as a proxy for world equities at least in stock market terms the Corona related pessimism has evaporated and life has come back full circle.

Let’s also take a look at what happened since Feb to the other parameters which we track closely. The US 10-year yield was 1.63 on 12^th Feb, it is now 0.97. Gold was 1565 $/oz in Feb and 1878 $/oz now. Brent crude is trading at 44$/bbl to 55.79 $/bbl on 12^th Feb 20. The Indian Rupee was trading 71.29 at that time. The numbers though don’t actually reveal what has happened in between and the unprecedented measures which were taken to counter the crisis. Interest rates across the developed world have reached zero, trillions were printed (or digitally created) and pumped into the economy while promises were made that the accommodation will continue till the sun shines.

One prediction which we made during the peak of Corona in March was to quote George Orwell from his book Animal Farm. The quote went like “All animals are equal, but some animals are more equal than others”. The purport of the line in context of the world markets was that different countries would end up very differently in their fight against Corona. The developed nations were supposed to conquer it efficiently once the shock and surprise of the first wave was over. It was expected that their well-oiled (and well-funded) governments would ensure that it is contained swiftly. For some strange reason that didn’t happen. Developing nations on the other hand were expected to fare much worse than they actually did.

However, the aspect where no surprises happened was on the front of economic stimulus. Developed nations were able to pump money into their economies to support the lost output without impunity. Other nations did it cautiously and reluctantly always in fear of a rise in bond market yields. In the context of market’s, the money printing by DMs has acute significance as the fringe theories like MMT became much more mainstream now. The key tenet of the theory being that if money presses can be turned on during the crisis why too shy away from them in peace time. Though here again it is not a universal truth. We will now wrap up this discussion with a question for our readers. With the advent of the vaccine (hopefully) and the low rates regime continuing, how will the post Corona world look like? Will all animals be equal, or some will be more equal than others?