Last week was a rocky one on the stock markets, with London, Frankfurt, Paris and New York sliding heavily. Sort of a mini-crash, but not too serious... a simple warning showing some nervousness among investors: has the time of disillusion come? In Europe and Japan, stock market indices are below their January 1st, 2014, level, and in the United States, they’re just slightly above it.

The basic problem is that global liquidity is growing at a much higher pace than real economic growth. Even with the Fed stopping its QE, there is Japan accelerating its own QE and the European Central Bank is restarting its own plan, notably by buying banking assets. And all those central banks are maintaining rates at zero, which facilitates monetary expansion. The result being that all this excess money, which is not going into the real economy (loans to businesses haven’t picked up), finds its way on the markets and pushes asset prices higher. Hence the stock market performance since 2009 (March 2009 exactly, date of the first Fed QE).

But, at a certain level of appreciation, the prices of risky assets (stocks, corporate bonds) stop going up because investors realise that, obviously, the risk premiums are not enough to cover the risk anymore. And the fear is being reinforced by the fact that hopes for a real economic recovery are vanishing (the IMF lowered its previsions, a series of poor numbers were recently published in the United States and Germany).

How are investors reacting? They’re fleeing into the last assets still considered safe, namely risk-free sovereign bonds, i.e. those of the United States and Germany, mainly. Because, at the same time, there is more differentiation taking place between sovereign bonds: Greece is being abandoned and its rates are rising dangerously; Spain and Italy are being shunned and are not profiting from this influx; France is getting some of the action, but not as much as Germany, which is reflected in the growing spreads between the different rates. The whole bonds sector is becoming more differentiated, more volatile, thusly more dangerous. But debts that are considered safe are profiting and, as we’ve seen, their rates turned lower last week amidst the stock market storm.

The United States’ public debt represents a large volume but, however, its absorption capacity is not infinite. And neither is its credibility. Even though the Fed is backing the whole thing and stands ready to print anything to meet payments, at one point defiance will be on the rise. We may not be there quite yet, but this is clearly the last rampart holding together the monetary and financial systems. If this starts to fail there will be a general panic.

Well, yes, there is another rampart, but the monetary authorities, the large investors and the banks do not believe in it: I’m talking about gold, of course. In the course of History, gold has never failed, but be warned: there might not be enough of it to go around!