The year 2020 will be an extremely tough year for the European economy. Added to an unprecedented drop is a strong impact in the fourth quarter due to the new lockdowns. Morgan Stanley estimates that the eurozone’s GDP will fall by 2.2% in the fourth quarter, a 7% drop in the full year 2020. In addition, the investment bank lowers the outlook for 2021 with a rebound of only 5% in the average of the euro area, delaying the recovery of 2019 GDP to 2023.

Many financial experts have rushed to make what has been regarded as “Biden trade” calls based on the projections by The Associated Press, NBC News and other news outlets of a Joe Biden presidency. The “Biden trade” is a synonym of a recommendation to invest in assets that may benefit from a Democratic presidency judging by the main policies announced throughout the campaign.

The first risk for investors is to make significant bets on radical changes of policy when the balance of power in the House and Senate may inhibit many of the headline-grabbing policy changes. We already have reports, for example, that show how the tax hikes may be halted due to a combination of a divided government and the negotiations of a new stimulus package.

Central banks continue to be obsessed with inflation. Current monetary policy is like the behaviour of a reckless driver running at 200 miles per hour, looking at the rear-view mirror and thinking “we have not crashed yet, let’s accelerate”.

Central banks believe that there is no risk in current monetary policy based on two wrong ideas: 1) That there is no inflation, according to them, and 2) that benefits outstrip risks.