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by Benjamin Summa
Mr Müller, DAX, Dow Jones and Co. have recovered from the dramatic Corona losses in spring, but the rally has recently stalled. How do you assess the opportunities and risks for the financial markets in the fourth quarter and beyond?
Dirk Mueller: We saw a very strong recovery, that’s correct. In the American indices, for example, this recovery was largely driven by heavyweights like Amazon and Google, which are clearly crisis profiteers. That strongly distorted reality. The DAX has not yet reached its highs from before the crisis. The question will be whether the stock markets will continue to develop independently of the real economy due to overarching issues or whether the actual performance of the companies will again be put in relation to their stock market valuation. The latter would result in sharp price drops. The profits of US companies have not increased since 2016 because of higher productivity, but because of drastic tax cuts by the Trump administration. After the US election there could be tax increases again – and then this effect would fizzle out very quickly. So in the coming months, too, we will have to live with the following uncertainty: Will the trillion-dollar aid measures continue to sustainably support the markets or will the poor profit situation of numerous companies have a hard impact on prices?
What is your corona scenario for the upcoming cold season? A second tough and nationwide lockdown, as recently announced by Israel, is certainly not an option in this country.
I compared the situation very early on to the development of a hurricane. The front has gone through with massive damage to many people and the economy. In the summer months we found ourselves in the eye of the storm – it was mostly calm. And now the back of the hurricane may come in with all of a sudden violence. I assume that the situation will escalate further in the coming months. The result of this development will be that there will be stronger restrictions again – with the accompanying effects on the economy. From my point of view, the dangerous thing about it is that a possible second wave will hit previously damaged structures in the economy.
There is increasing evidence that the German economy will have to cope with a less dramatic slump than was feared a few months ago. How do you assess the further economic development?
I can’t really understand that. In my opinion, the economic slump is far more dramatic than, for example, in the wake of the financial crisis. The World Bank has permanently adjusted its forecasts downwards. But I can already see one thing: people haven’t looked properly for months. The bankruptcy obligation was temporarily suspended, which led to the bizarre situation that in the greatest crisis since 1929 we had ten percent fewer bankruptcies than in the boom phase of 2019. Many economic regulations that have defined our economies over the past decades , currently no longer apply.
From October 1st, companies must file for bankruptcy again if they are acutely insolvent. Are you now expecting a wave of bankruptcies in Germany?
We have tens of thousands of zombie companies in Germany that are in fact bankrupt but have been kept alive. The much-discussed bankruptcy wave will come, I am sure, but for now the state aid and bridging funds will still take effect. But that doesn’t change the basic problem. Many ailing companies – above all restaurants, tourism companies and cultural businesses – have a hard winter ahead of them. In the next twelve months we will most likely receive a lot of negative news from the economy.
What impact do you think the outcome of the US presidential election on November 3rd will have on financial markets?
Everything now depends on how Donald Trump’s corona infection develops. For me, however, one thing is certain: If Joe Biden were to win, it would certainly have negative effects on the stock markets, because he has already announced that he wants to raise the corporate taxes that Trump has cut again. A collapse in corporate profits would be the logical consequence. But a street fight for power would also have extremely negative effects on the economy, a situation in which Donald Trump would not recognize Biden’s election. Should Trump win, then one can assume a status quo policy. But one thing can already be said: No victory by either of the two opponents will trigger euphoria. The problems that have piled up in the United States are simply too numerous for that.
Gold lost its feathers last month. Some write that the gold price rally is over. How do you see it
I don’t care what the gold price is doing today or tomorrow; This is about the madness of the capital market, none of this has anything to do with the real value of gold. Gold has not become worthless in 5,000 years. We have an unparalleled flood of money and high inflation expectations in the medium term. So, as a saver, I have to look for asset classes that somehow help to preserve the assets saved. And gold is part of it.
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Image sources: Dirk Müller