The 2020 'Gold Rush'

The above misquotation from Laurel and Hardy is a handy way of clarifying that the ‘Gold’ in the 2020 ‘Gold Rush’ is not the yellow metal itself (although it is actually also proving quite popular in its own right) but equities and related risk assets such as junk bonds, collateralised loan obligations, leveraged loans, options, futures and and even more complex derivative contracts. This ‘Gold Rush’ has all the historic features of greed, hype, frenzy, panic and fraud as well as a cast of the good, bad and ugly adventurers, pioneers, experts, middlemen, oligarchs and, of course, charlatans and fools. There is even with COVID-19 a real fever to add to FOMO! It is also the case that, as in the historic gold rushes in Australia, South Africa, the US and Canada, there really is value being ‘mined’ in global financial markets in 2020 and not merely bubbles that will end in a pop. What is definitely different this time, however, is reliance on governments and central banks, which dramatically raises the political and economic stakes as well those in global financial markets.

One can argue over exactly when this ‘Gold Rush’ started but there seems little doubt that it has been running hot since early April. Equity markets had been heating up from October last year before being rudely disrupted by COVID-19 or, rather by the lockdowns in response to the virus. However, after being kick-started by fiscal and monetary stimulus, the Rush has been back on as FOMO returned. Jitters may lead to some profit-taking but even their persisting  would only represent another phase. US equities (seemingly irrespective of size, sector, profitability and debt-service capacity) look set to have their best quarter for decades with most other equity markets tagging along and some even outrunning the rampant NASDAQ There has been record sovereign and corporate borrowing (notably including Junk bonds and leveraged loans), eagerly taken up despite miserable, if not yet negative, nominal returns on a glut of low or unrated ‘covenant-lite’ securities, with a high risk of subsequent refinancing and/or default. Speculative option trading volumes have gone through the roof. Sell-side analysts (according to FactSet) have seen little need for COVID-19 to trim their recommendations but, in any case, the most eager punters may not even be bothering to stop to read them before buying.