The financial markets appear to be increasingly decoupling from the real economy. This impression can be increasingly gained. All asset classes are benefiting from low interest rates worldwide, very low interest rate expectations and, at the same time, an almost inexhaustible supply of liquidity. In addition, there is a never-ending series of government aid packages. All of this seems to create an environment in which, even in the worst economic crisis in more than 50 years, hope outweighs all current fears and concerns. The result is high valuations in all asset classes; in particular, government and corporate bonds have in some cases strayed far from their fundamentals, as central banks are also buying directly.
These observations are not new. Since the financial market crisis, this development can be observed in the financial markets with varying intensity. In the past, the high valuations were at no time a significant risk factor. In the end, the only important thing was that the central banks are always ready to support the financial markets. In view of the rising national debt, there is unlikely to be any lack of this in the future.
This is of course no perpetuum mobile, as the central banks‘ ability to act and their credibility will decline over time. Thus, in the future, the point will be reached where the markets‘ valuation is no longer covered by the belief in the central banks. With serious consequences for the financial markets. Until then, we still have enough time to take countermeasures and reduce debt organically. Possible from today’s perspective, but unfortunately unlikely.