Matthew Lynn Matthew Lynn

Up Crash: why are markets soaring as the economy tanks?

Shops are boarded up. More than four million people are on furlough with little idea of whether they will have jobs to go back to. Global trade has hit levels last seen a decade ago, and government deficits are soaring, while most developed economies have seen output shrink by 10 per cent, a collapse not seen since the Great Depression of the 1930s. On just about every measure imaginable, the global economy has never been in worse shape, and we are all a lot poorer.

And yet here is a puzzle. Why can’t we see any evidence for that in the financial markets? Instead we are witnessing a series of extraordinary, epic bull markets. Crypto-currencies finally took a dive this week, but Bitcoin has quadrupled in value in recent months. Tesla is worth more than Toyota. Commodity prices are racing upwards, and small day traders are taking on the big Wall Street hedge funds, sending prices of obscure companies through the roof. The apocalypse has never been so profitable.

Welcome to the strange, looking-glass world of what is starting to be referred to as the Up Crash. Even as the world grapples with a pandemic, asset prices have been exploding and anyone riding those trends will be making a lot of money. Crazy? The markets behaving in ways that are even more unhinged than usual? Well, there may be an element of truth in that. And yet the Up Crash is also completely explicable, even if not entirely rational. Power-ful trends are coming together. The global policy elite has formed a consensus on a version of free-spending Keynesianism that has not been seen since the 1960s. Technology has been accelerated by the pandemic, disrupting old industries, and creating new ways of working at lightning speed. And the markets have a whiff of insurrection about them as new players usurp the traditional bastions of financial power.

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