• Where lie the risks?

The key risks are from rising unemployment over the coming months, and of corporate bankruptcies with a possible knock-on effect on banks. Related to this is the worry that central banks and governments reverse their bankrolling of the economy prematurely, perhaps for political reasons. Here the U.S looks vulnerable, as the outgoing Trump administration threatens to demonise those Republicans in Congress who might be prepared to work with Democrats. Trump retains a grip on the Republican Party because of his large support base.(Indeed, The Economist reports that 80% of Trump voters believe his claim that the election was ‘stolen’ from him).

• Enter Munchin and Eastern Europe

Ominously, on the 19^th November Treasury Secretary Steven Munchin demanded that the Fed ends some of its lending programmes to businesses, which have supported the credit market, because ‘they have clearly achieved their objectives’. This premature evaluation risks politicising a key support for the economy. If the market loses confidence in the independence of the Fed, and in its ability to maintain liquidity in bond markets, these markets risk seizing up with a knock-on hit to stock markets as investors flee risk assets.

Munchin may genuinely believe that the U.S economy is in the clear, although this isn’t reflected in the rapidly rising number of Covid-19 deaths we are seeing in the country. Or he may be positioning the Republicans as the party of orthodox monetary policy, ahead of a period of opposition, and believes that any damage to the economy can be pined to the Democrats.

Meanwhile, Europe’s recovery could also be hurt by anti-democratic governments. E.U’s Euro 750bn recovery programme package of grants and loans to its member states has been blocked by Poland and Hungary, because of provisions that enable distribution of funds to be suspended if countries do not comply with the rule of law. Both countries have seen their judiciaries and their media circumscribed by populist governments.

• Bitcoin

The virtual currency has risen 50% in the last month, to $18,219. It is in striking distance of the $19,458 high seen in December 2017. Bitcoin has attracted hedge funds and other professional investors, who are using it to diversify their portfolios and as a hedge against inflation. Bitcoin prices have no correlation with equities (or, indeed, any other financial asset), which helps reduce portfolio volatility.

• A weak dollar?

Bitcoin supporters will also point to dollar-specific risks as a reason for Bitcoin’s rally. There are two key arguments for thinking that the USD will weaken over the next 12 months, as the American and the global economy recover. The first is the current account deficit. The U.S does not pay its way in the world, running a current account deficit of 2.3% of GDP (amongst the 40 largest economies, only Turkey, Egypt and Saudi Arabia exceed this). As the focus of global economic activity shifts to Asia, the ability of the U.S to continue to attract overseas capital to make up the difference comes into question, and if capital can’t be found the U.S currency may have to adjust.

The second reason to perhaps be sceptical over the dollar is a more cyclical theme. As the global economy recovers, investors will be drawn to riskier assets. This means non-U.S equities and bonds. The effect on currencies is straightforward: the dollar falls as investors sell -for arguments sake- U.S Treasuries, and buy shares in Taiwanese semiconductor chip manufacturers.