“Give me a ping, Vasilli. One Ping Only.”
This is going to be… a very “interesting” week. The Global Pandemic, US Elections, Central Bank meetings and a veritable deluge of signs, portents and warnings of greater pain and strife to come. In any normal world, investors would be running for the hills and shelter. Not this week… this is not a normal world. This is a world where doom, gloom and imminent catastrophe spells only one thing – More Stimulus! Yay!
Despite last week’s slide, and the fact October proved a down month, markets are holding up better than a rational man would expect. The upside is how resilient parts of the global economy are proving despite the pandemic – stemming contraction as new tech is quickly adopted. It’s the mainstream economy that’s increasing suffering – and will suffer more. We’ve got stories of imminent disaster in hospitality, airlines and oil is another couple of dollars cheaper.
Markets seem immune, buoyed by expectations of large, larger or massively larger US stimulus packages to follow the election, while renewed lockdowns in Europe will cause the EBC and BOE to dig deeper into the pots of gold they are apparently sitting on.
It’s a sad state of affairs when the main driver on markets is going to be the largesse of governments and monetary authorities. Occidental markets are pricing in QE Infinity, NIRP (Negative Interest Rates) and further stimulus for eternity – and its ultimately unsustainable. Every financial professional knows that… but it’s little wonder an increasing number of retail investors, and even smarter middle aged savers, increasingly believe stocks can only continue rising.
It’s a dangerous notion.. Blain’s Number One Market Mantra is screaming in my ear: The Market Has But One Objective: To Inflict the Maximum Amount of Pain on the Maximum Number of Participants.
When the bubble pops… it won’t be an “Ouch” moment. Check out the Wilhelm Scream! The upside is that we all know governments and central banks can’t risk a market meltdown unravelling what fragile confidence is keeping the economy together.
Without the implicit promise of further support, I suspect we’d not only be looking at negative interest rates, but negative financial asset prices as well! That’s a fascinating concept – could we ever get to a stage where zombie companies come at negative stock prices…? Limited liability makes that improbable in equity (unless laws change to allow dividends to be recouped… (like maybe in some Private Equity scams? why not?)) … but in real terms financial asset stagflation has pushed essentially valueless insolvent assets to record levels in the face of economic meltdown… if the situation was to change, I could see a position where worthless and illiquid stocks and bonds are valued less than zero in real terms. Park that thought…
Meanwhile.. Pennsylvania will be the state to watch…
There isn’t much point saying anything about the US election this morning – but I suppose I must. Whatever the Democrats want to believe, Trump has been narrowing the gap. Cutting through the noise and multiple polls, it looks like a slim 5-6 point Biden lead. That’s better than Clinton had in 2016, but no guarantee of success. The Democrats need to power through to the finish even as Trump finds new legs.
Key States look tied – Florida, North Carolina, Georgia, Iowa, Ohio and Texas. Then there are Pennsylvania, Arizona and Michigan which look Biden marginals. Penn will be the one to watch. If Trump wins all the ties, and Biden takes all his marginals, then it’s a new man in Washington – but its tight. Much has been written about how the polls are wrong, and why they are right..
· If the polls are right, then it looks like a toss up between Biden plus a Democratic Congress (both Senate and Representatives) or a Biden Presidency and Republican Senate because many of the Senate races also look like ties – coin tosses too close to call.
· If the polls are wrong then we get 4 more years of Donald. There is a chance we get Trump plus a Democrat senate – which will leave China rolling on the floor convulsed with hysterical laughter… (Who ever thought a mild new flu would so utterly convulse and destabilise democracies so effectively..)
Unfortunately.. it won’t end on Wednesday morning as Trump warns he’s already planning to go to the lawyers. There is plenty to worry about in terms of immediate and post-election volatility and uncertainty – but everyone already knows that. The likelihood is a still divided, polarized US and the prospect of another four years of low grade, weak and/or chaotic government – at the time when strong, intelligent leadership has never been more necessary to address the Pandemic, Climate Change and China.
The long-term immediate consequence will be felt in the dollar and an increasing investment shift to real growth and returns from Asia – meaning China. That’s hardly the result Trump intended when he identified the China threat. For all his “efforts” to repatriate manufacturing and seize back the initiative, China will emerge stronger.
Thus far the US, and UK, stand out for their chronic dither through the pandemic crisis. Believe what you want to believe, but the virus is not fake. It’s a massive challenge to the West to steer economies to avoid hospital’s being swamped while minimising economic damage. Null points thus far to both nations.
Over here in Blighty..
When the only good news is that a Brexit agreement on Fish is apparently in reach, you just know it’s likely to be yet another hope about to be dashed. Some fisherman down in Cornwall will be interviewed saying something about being “stabbed in the back” by the Tories, and that’ll be-that.
The UK will enter Pandemic lockdown later this week through till December…. It will just be another tick on the lengthening list of reasons to sell the UK and buy… just about anything else. At some point either things get better or UK financial asset prices will be so cheap we won’t be able to resist buying.. but buy what?
Name me a world class and world-size UK firm that screams its worth buying? HSBC? BP? Rolls Royce? Or what about Aston Martin (CCC rated and just paid 10.5% to borrow another billion..) PLEASE, but no to all of them. Brits have an awesome reputation for being inventive & innovative so why isn’t there a single UK big tech firm anyone has ever heard of? We’ve more Nobel Prize winners than you can shake a sharp pointy stick at and nothing to show for it.. Our big companies are decaying dinosaurs or struggling anachronisms, while our embryonic unicorns are carved up while still far below the viable stage.
Some grown up policies on industrial strategy and growth might help. A focus on reform, social and physical infrastructure, education and health…? Zero chance. Brexit uncertainty and the Pandemic hitting harder than anywhere else share the common source of crap government. As we keep being reminded, last year the UK was reckoned to be one of the countries most likely to cope well with the “big one” epidemic when it came. Instead we’ve tripped over everything from PPE, ‘world-class test and trace..” and communication.
I think its God’s way of punishing me for Voting for Boris. It’s all so depressing… I’m thinking of becoming a Liberal…
If I come down with a ranging dose of the dreaded lurgi I know who to blame. She-who-is-Mrs-Blain and I spent the weekend on the Isle of Wight – a Yoga retreat. (Yep.. I know what you are thinking: I may be the least likely Yogi ever… but it gives me a perverse sense of achievement to gracelessly morph from Sphinx into Warrior pose… or something like that.)
Our trip home was “challenging” – catching an incredibly busy Ferry, which was then delayed for hours because of a “welfare incident” involving one person struggling with mental health issues refusing to get off the boat we’d boarded.
The situation was pretty tragic – but over 1000 passengers were crammed into tiny public spaces on a warm, dank ferry that must have favoured virus transmission for hours as the Ferry crew tried to resolve the situation over the one passenger. I’m told the police initially declined to intervene while the crew attempted to contact local mental health support on the Island (good luck at 4.30 pm on a damp Sunday afternoon.) Eventually passengers were calling 999 and she was removed. It was tragic, pretty awful and upsetting to hear the woman screaming.
It must have been terrible for the crew. Mental health is in crisis, but there were over 1000 people, including loads of unmasked kids running around, while elderly people were visibly upset. We were all trapped on a virus incubator. It must have been even worse for passengers on another ferry stuck out in the Solent (the sea between the Isle of Wight and the real world) waiting for the ferry berth to become free – it was blowing a Force 9 gale on Sunday evening!
The correct response would have been immediate police and medical response to protect all the passengers swiftly – but no.. we had to go through a bureaucratic litany of delay and frustration… Pretty much the whole UK in miniature. If I start coughing…
Five Things To Read This Morning
FT – A clear US Election result will calm investor nerves. (NSS award on its way to FT for this little nugget of hope over experience)
Thunderer – UK on brink of double-dip recession
And an extra one this morning: Sir Sean Connery
Out of time, and back to the day job!