At the beginning of the year, as the S&P 500 was making new record highs, many observers wondered about the connection. The growing disparity of wealth and income may also raise questions about the linkages between Wall Street and Main Street. Among the most striking things about what is going on is that it is not limited to the US. Risk assets around the world are rallying despite the dreadful economic news.
At first, in late March and early April, the recovery seemed to have been the response to policymakers removing the far lefthand tail risk and a total collapse of the economic and financial system. Since the middle of May or so, it appears a new phase has been entered. Now the liquidity that the central banks continue to provide in sums that simply boggle the mind, coupled with an incredible fiscal response, floats nearly all risk assets. The ECB just added more today. This is much bigger than the Powell Put.
I recognize that this is not sustainable (what is?), but it can last longer. In the video, toward the end, I discuss one risk, fiscal cliffs, i.e., the end of support programs and how that is managed.