Everything You Need To Know About Financial Markets In 2020 In Under 10 Minutes

Hey guys, Eddie here, and welcome to another video. Today I've got the very tough task of basically explaining to you everything you need to know about financial markets in 2020 in under 10 minutes. So let's get into it. We can't start talking about this year without talking about global central banks. They've pumped billions and trillions of liquidity into the system through quantitative easing, for through easing of interest rates with forward guidance basically saying we're not going to raise interest rates for the next 2 years. We all know that interest rates simply cannot go up just due to the sheer corporate leverage, the private leverage that we've got in the system. Um, interest rates cannot go up for a very, very long time. So since the March 23rd bottom, the Fed has stepped in, pumped huge amounts of liquidity into the system, and this liquidity arguably has gone to your junk bonds, your, your high-yield bonds, your investment-grade bonds, and of course into global equities. And that's why we're seeing such a divergence between financial markets and the real economy. Global GDP annualized, whether you should analyze it or not, in America is down over 30%. In the UK, we've seen it's down over, sorry, 20%. So global GDP is starting to pick up, but the global devastation that we've seen all over the world in terms of lockdowns preventing people from working, consumption patterns changing, consumption making up such a big proponent of GDP that we're yet to see whether those behavioral patterns are actually permanent and there's structural changes to the economy. But global GDP fell off a cliff and we're yet to see this really return to normal levels. And Who knows, are we ever going to go back to normal? Everyone's gone a bit FANG crazy. So if you're at home, chances are you're ordering from Amazon. If you're working from home, you're using Azure, you're using Amazon Web Services, you're using your Google search engine. Okay, you're watching YouTube videos when you shouldn't be watching YouTube videos. Okay, so global, basically domination from these behemoths of not only the S&P, the NASDAQ, but really the world. And I like to say this is just a— this is a FANG world and you're just living in it. And they came out with blowout figures, okay? So there was a lot of hype about these names and people were, you know, putting a huge amount of money into them. But they came out, Amazon made over $9 billion in one quarter, and this is when the economy was completely shut down. So that just shows you the power of these giants, okay? And they're driving a lot of major indices, especially in the, in the Nasdaq. We've seen the emergence of David Portnoy and retail trading. So Charles Schwab, E-Trade, Robinhood, you all that know the names by now. Everyone is sat at home supposedly trading, you know, your favorite names like Hertz. Okay, so some pretty dangerous bankrupt names. Okay, one story that was in the news recently, Kodak, that was up a huge amount, over 600%, has come crashing down to earth. as a result of reality stepping in. So lots of retail traders have entered the market, whether this is moving markets or not, you know, there's some, uh, other forces at work there, um, but you're seeing a major adoption really of investing, uh, while people arguably, um, were gambling or were doing other things, you know, lots of company, uh, people as stocks have hit all-time highs, particularly in the NASDAQ You know, lots of people have been entering the market. We can't have a video this week without discussing gold. Okay, the safe haven asset that is the yellow precious metal. Lots of investors are seeking security in this precious metal for a range of different reasons, be it global uncertainty, a store of value, an inflation hedge. If you're looking at inflation expectations, real yields, for example, the lack of yield that you can get from assets like the 10-year Treasury. And really the gold story here is inflation and inflation expectations more recently picking up. This erodes the future cash flows of asset classes like bonds and lowers the opportunity cost of actually holding gold. So we're seeing, you know, big firms like Bridgewater adding to their positions and lots of investors actually seeking refuge in the precious metal. Especially when we've got a huge amount of risk on the horizon. Okay, so the November election in the US as a good example, US-China trade war tensions rising as well. So there's a lot of risk in terms of the economy, the economy and whether that's going to really recover and firms are going to remain solvent. Okay, we can't talk about 2020 without Tesla. So Tesla shares have hit over $1,500. Okay, a huge story. Electric vehicles, you know, is it a tech company, you know, is it a good ESG play? All I know is Tesla shares have had a wild ride, you know, rising above that $1,500, and they've just announced a 5-to-1 stock split, okay, to make it even more accessible to retail traders, you know, despite the big price rise we've seen. But it really is a great story. You know, whether, you know, they— it reverts back to the mean, we'll have to see. But Tesla is definitely a story for 2020 in amongst the devastation that we've seen with economic activity. Oil as well, as we know, went negative, okay, in April, went to negative $40 a barrel. And it's funny, I was talking about peak oil where it was $160 a barrel, which is hard to believe now. Now we're sitting around $42. So there has been a bit of a rebound as some of the supply has been taken off the market and global demand, or the basically the thought of global demand picking up as lockdowns are eased, have started to pick up. So oil prices have rebounded, whether they're overextended or not. We'll have to find out, but what we do know is it caused a lot of damage in the economy, and particularly with US shale, with prices of the barrel of oil being sub-$40, which is generally the break-even point for those firms to make money. Okay, so lots of firms went bankrupt in that sector. Yields are at record lows, and yields are probably the most important thing at the moment. We're seeing real yields fall dramatically into negative territory. Okay, and this is actually driving, or one of the big driving forces with gold. So real yields and gold are moving in lockstep. Okay, so the world is being starved of yield. Okay, so with these, uh, if it's a Treasury at 50 basis points or 60 basis points, if it's a German Bund at negative 50 basis points, you know, this is leading investors and portfolio managers, allocators of capital, to really search for yield elsewhere. Okay, so if it's CalPERS, a big pension fund looking for a 7% return, they're seeking to more risky asset classes like private equity, okay, which is to match basically their unfunded liabilities. And that is definitely something that I'll be watching with quite considerable detail. But a lot of money has arguably flowed from these, uh, you know, bond yields into the FANGs, right? They have pristine balance sheets, low debt, huge cash, cash reserves, huge free cash flow. Okay, so they're super attractive and really, you know, they're, you know, they're premier class. And that's why so much capital flowed into them as almost a defensive play. Now, they do well when the economy is doing well. They do even better when the economy shuts down. So who are we to judge? But what we can see from this chart is yields are at record lows. And actually, we saw yields rise just slightly, and gold didn't move. So that's definitely a good thing for gold. Okay, so what's coming next? We're entering this phase where demand and revenue obviously is now starting to return. So that liquidity problem that companies were facing, um, you know, is a— is something in the, you know, backdoor mirror. Now we're looking, can they remain solvent as the economy kind of comes back online? Um, you know, are these firms going to be able to manage? Is the restaurant going to be able to manage at 30% capacity? Is a gym going to be able to manage at 30% 50% capacity? What about a hotel when all of these traditionally rely on at least 70% capacity to even make money? Okay, so we're entering a phase now where we've got stimulus, another stimulus package that is struggling to get passed in the United States, furlough schemes ending in the UK as an example, another lockdown coming from France. So, you know, there's huge risks on the horizon. I've got a picture of Donald Trump the nice-looking man he is. There's an election on the horizon in November, okay, so that's definitely something to be watching as well. And according to the VIX structure, you know, there's going to be some volatility there with Kamala Harris just being— just being allocated as a VP for the Democrats. So there's definitely risk there. US-China tensions are bubbling as well. So there's a lot of risk on the horizon, but I guess we're all here to make sense of it. So I hope you enjoyed the video and I'm pretty sure I've done it in under 10 minutes. I 100% missed out a lot of different things. If I did miss something that you would like to hear about, put in the comment section below. As usual, subscribe to the channel for more great insights from all of the team and I look forward to getting more involved in the YouTube channel from my little YouTube vacation. But take care, I hope you enjoyed the video.