The Champs Élysées has been the site of victories, downfalls, and riots.
By Daniel Lucas
One late July morning in 2005, a man riding a bicycle at breakneck speed through the suburbs of Paris narrowly averted disaster when he almost slipped on a bend in the road, which was still wet from rain the night before.
Recovering his composure, he powered his way into the city, winding through masses of cheering crowds, along the luxurian pomp of the Champs Elyseé, finally reaching the Arc de Triomphe, where he would claim his record-setting 7th Tour De France victory – the highest prize in world cycling.
Lance Armstrong’s feat was the latest in a long line of incredible achievements for the 33 year-old. Having beaten testicular cancer that had metastasized to other parts of his body, Armstrong had bounced back to retake the global cycling world by storm, all while leading a high-profile anti-cancer charity.
Then, in 2006, it all began to unravel.
A former teammate alleged that Armstrong had been the ringleader of a complex doping conspiracy that involved a highly organized, decades-long operation to use cutting-edge, performance-enhancing drugs while keeping ahead of sporting authorities.
By 2012, the US Anti-Doping Agency had stripped Armstrong of all his titles, and banned him from sports for life. A year later, he was on Oprah admitting to it all.
At this point, you might be asking yourself why we have begun this newsletter with one of the darker episodes of sporting history.
The answer is because it has parallels with what is going on in the world’s stock markets.
Stock Markets: Economic Barometer or Parallel Universe?
Anyone who uses stock market performance as a way of gauging the health of the global economy might be excused for thinking that we are, for all intents and purposes ‘winning’.
Major equity markets have been at record highs for the past month, and have only just cooled slightly following news reports that much-hyped COVID-19 vaccines still face a number of challenges before they can be rolled out by governments en masse.
However, blips aside, stock markets are on fire: the MSCI ex-Japan Emerging Market index is higher than it was at the same time last year, before the pandemic rocked the world. So is the S&P 500, which tracks the 500 largest stocks listed on US markets.
Does that mean that the global economy is ‘healthy’? That’s a completely different question.
Much like the performance-enhancing drugs injected by Lance Armstrong, the massive quantitative easing (QE) that governments have been injecting into global markets since the last financial crisis have achieved some incredible, but ultimately artificial results. The only difference, beyond the obvious ones, is that what governments have been doing is ‘legal’.
By printing money and setting interest rates to their lowest levels in history, major economies have essentially been handing out money to investors for next to nothing. So while actual profits from many large publicly-listed companies remain muted, their stock value continues to boom due to the demand for somewhere to put all this cheap cash.
At the same time, the number of people going hungry each night is growing fast. For the first time in 20 years, the World Bank expects global extreme poverty to rise this year.
The problem is not just in developing or third world countries – it’s happening across the developed world too, from the U.S. to the UK, Europe and Australia. In the U.S., it is estimated that 40% of the people who have accessed food banks in the last year did so for the first time in their lives.
Lockdowns, now back in force across much of the planet, have forced thousands of businesses to close, from restaurants to bars, cinemas to hotels, sports centres, retail shops – the list goes on – and left millions unemployed. The social and political consequences that are emerging, from riots to conflict and a collapse in demand for non-essential goods among large chunks of the global population – are likely going to be long-lasting, and ugly.
The answer of many governments to this is generally “we need to do this to protect our nation’s health” in the long run. Sometimes, if we happen to be ‘lucky’ enough to live in a country whose government is at least slightly inclined to help its citizens, they will offer some financial help too, provided by their magical money machines.
If you’re not, and your business has been ravaged by the lockdowns, you’re basically out on your own, and hopefully have some savings to dip into.
So why are stock markets rallying?
First, it’s important to consider some of the heavyweight industries on the markets. The FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) are all involved in what is termed the ‘home economy’ – in simple terms, they make money when people stay at home.
If government stimulus checks come in and/or a good proportion of customers are involved in the digital-based economy, these types of companies stand to benefit most, as they do not rely on people leaving their houses.
Investors also look for industries that are considered important enough by governments to warrant continued financial support – agriculture, energy, etc.
But beyond the free government money and the emergence of ‘disruptive’ industries that do not require consumers to leave their houses – what else is driving stock markets so high? Why are investors so confident that the money they are putting into these stocks will continue to gain value, or return dividends?
While a prognosis of the global economy needs to actually look at present conditions, stock market prices are largely based on the future – or what can be more crudely described as imaginary: that which has not yet come to pass, but is expected and envisioned.
As humans, we tend to project the present into the future with alarming consistency, despite the evidence nearly always pointing to otherwise.
Can the money ‘printing’ go on indefinitely, so that we are all essentially using Apple / Amazon / Monsanto tokens (formerly known as cash) in a kind of non-productive, debt-driven circular economy? From a look at stock markets, it would appear that many believe so.
But the answer is definitely not clear-cut. And we wouldn’t bet on it, as history has shown time and again, that an accumulation of debt rarely has a happy outcome, and that what may seem like a triumphal ride down a plush boulevard can quickly be revealed to be a drugged-up fantasy joyride down a soon-to-be burning street.
For these reasons, it’s more important than ever to understand how to be prepared for potential shocks and combined, ‘perfect storm’ crashes in currency markets, equity markets and global economic activity.
We have recently released our COVID-19 Economic Security Guide for our paid members, which covers a range of strategies and options for securing your position and broadening your horizons in these tempestuous times.
Membership still costs just US$5, but we will be raising it as soon as we release our next report, which will kick off a series on attractive countries for establishing residency, companies, and bank accounts.