MM 19 January 2021

Quotes

Success is 10% inspiration, 90% perspiration

What define greatness = execute well under pressure

Markets & Macro news

"Like the flu, Covid is here to stay"

Be bullish mid-term, but expect a correction between now and February

China leads the way 

Dr Copper sees it

And so is the currency market

Trade is booming, pushing freight rates through the roof. Have you got a shipping line in your portfolio?

So what is the jist of this market?

The market understands (or dare I say) knows that the Fed and the world’s major Central Bank will keep ST rates low for a very long time, with a view that eventually it will allow governments to borrow all the money they can to drive the economy to an inflationary state that will reduce the burden of debt as % of GDP. 

Central Banks have failed to drive inflation so far and are now in a game of permanent monetary repression and debt monetization. 

We are now in a transition, waiting from the monetary baton to be passed to the fiscal side. 

Biden’s USD 2tn stimulus plan is the first salvo. It marks the return of big government in the West. 

This is as significant as the early 1980s regime change that saw Volker, Reagan and Thatcher kick start the new liberal globalized world order that died with Covid last year. 

Monetary stimulus has lifted asset prices, notably fixed income and quality growth over value. But it has been accompanied  by value anxiety (bubbles), historically high correlation (nowhere to hide as equities and bonds are the same Fed trade) and high volatility. 

The countertrend of this backdrop has been the  rise of alternative and uncorrelated real assets such as Bitcoin, materials, TIPs etc

The ECB has contained the risk of insolvency and worked to save the Eurozone. By doing so, it has given a blank cheque to France and Italy and encouraged government to centralise, regulate and intervene. 

In Europe, the catholic top down mantra of state profligacy and unshackled budget deficit has won over the bottom up protestant ethic, by accepting its mercantilist trade doctrine. 

Unlike the US and the UK, it wont escape its deflationary fate and will look increasingly like Japan. 

The US will play the card of MMT until inflation is making a come back, courtesy of a consumer economy that does not know how to save and prefers to sort out its problems with a currency debasement that reinforce the role of the US dollar as world’s reserve currency. 

This model will work until it doesn'tThe US 10y yield will be the most important gauge of reflationary success.

Meanwhile, investors will stick to what has worked and stay bullishly passive. Passive investing represents the industrialization of finance. It works because market trends are managed…It won't if the Fed loses control.

There will be corrections. Buy them. Europe's cyclical upswing will last til mid 2022. Market looks forward and may extend rally til mid year. Euro will fall short term versus the USD. 

A decade of low real returns are in store, but nominal returns could be OK for real assets in nominal term. The last thirty years have been driven by monetary authorities, the next thirty years will be fiscally driven market.

Themes, Sectors & Corporate news

Want to buy Pharma? Think twice