One of the most repeated sentences in the financial media is: “do not fight central banks”, making the argument that you have to be invested in equities and especially in the most cyclical part because central banks increase money supply and support risky assets.

Reality shows us otherwise. Following the central bank only works in the United States and particularly in technology companies. In Europe, following the central bank is not only a bad idea. It is counterproductive.

The balance sheet of the European Central Bank has expanded more than 147% since 2014 and the Stoxx 600 index, which includes the 600 most important companies in Europe, has appreciated just over a paltry 4%. There is a similar story in emerging markets. Global money supply has soared to all-time highs and the Emerging Market MSCI Index has barely appreciated by 5%. In fact, investors are taking significantly more risk only to follow monetary policy for weaker results.

The rise in Covid-19 cases in countries like France and Spain has increased the risk of new
lockdowns. Governments should understand by now that shutting down the economy is highly
inefficient and devastating for jobs and business solvency. However, as we have seen in Spain, many governments simply decide to start new lockdowns in order to show that they are taking aggressive measures, even knowing that these generate more negative effects and have no real impact on preserving health. Instead of looking at the examples of South Korea, Taiwan, Sweden or Austria, where simple but effective measures have resulted in better management of the health crisis, some European governments are ignoring the economic and social long-term disaster that closing down the economy has created and seem prepared to repeat the past mistakes.

The employment recovery in the United States is as impressive as the collapse due to the lockdowns.

In April I wrote a column stating that “The U.S. Labor Market Can Heal Quickly”
and the improvement has been positive. Very few would have expected the
unemployment rate at 8.4% in August after soaring to almost 15% in the middle of the pandemic. This means that the unemployment rate is in August 2020 lower than what analysts projected for the end of 2020. Even the measure of underemployment (U-6) has fallen from 22.8% to 14.2%.