Central banks and investors believed stimulus programs had created a “New Paradigm” where asset prices would always increase. Now they are starting to realise that stimulus is irrelevant against the 3 Horsemen of the Apocalypse – China’s continuing battle with the pandemic, Russia’s invasion of Ukraine, and potential famine as rising gas/fertilizer prices mean farmers can’t afford to grow their crops or feed their animals.
Energy and financial markets are exacerbating the risks ahead. Oil prices at current levels – as the chart confirms, they now account for more than 3% of global GDP – have historically led to recession as the chart shows. The reason is that consumers have to cut back on their discretionary spending, which drives economic growth, in order to heat their homes and travel to work and school. Today’s high levels of natural gas prices add to this risk.
Automakers are ahead of the game in terms of strategic planning. They soon realised the move to EVs meant their traditional business model, based on proprietary engine technology, would inevitably become obsolete. And so they quickly realised they need to pivot to focus on AVs and become software-driven. The rest of us need to catch up.
Rising interest rates will continue weighing on equities. Since 2009, the Fed has focused on financial markets, hoping to impact jobs and growth.
Markets are starting to realise you can’t have a V-shaped recovery without rising inflation and bond yields
Our move to become “cautiously bearish” on the S&P 500 proved prescient.
Markets are starting to realise that Biden’s focus is on improving the lives of working and middle-class Americans, not new S&P records.
Hedge funds have been happily selling the US dollar and buying commodities for some time, creating the illusion that a strong economic rebound is underway.
An insurrection in the US capital, the formal election of the next President interrupted, and 5 people (including a law enforcement officer) dying in armed clashes. But as happens in financial bubbles, the markets sailed on untroubled.
Investors have been spoilt in recent years by the absence of risk. 2020 confirmed the ‘risk off’ mode as central banks ramped up their support. But will Wall Street continue in party mood, despite the growing problems on Main Street?
“Fundamental reality will start to dawn, as it always does, in the end”
“The rationale behind today’s euphoria seems based more on illusion than reality”
” Investors expect $trns more stimulus from Janet Yellen & Jay Powell”
“Everyone hopes that the new vaccines will prove effective. But we doubt there will be a quick return to ‘business as usual’.
“Bliss was it in that dawn to be alive, But to be young was very heaven!” But this early excitement is unlikely to last once pandemic reality returns to the headlines
There are 10 weeks till the Biden Presidency is due to start. But Donald Trump has refused to concede the race, and Senate control is still in doubt.
It seems likely that Joe Biden will win Tuesday’s Presidential election. We look at the potential impact on financial markets.
50 million Americans have already voted in the Presidential election. Turnout is on course to be the highest percentage since 1908. This week we analyse President Trump’s agenda if he is re-elected. Next week, we will look at Joe Biden’s alternative for the country.
Supply/demand balances are weakening in oil markets, whilst a Fed Governor has highlighted the serious problem that developed in Treasury markets during the March collapse. We also focus on the economic impact of the Perennials – who will provide the majority of US/Western and Global population growth over the next decade.
China’s industrial heartland of Hubei (pop 59m) and its capital Wuhan (pop 11m) have now been locked down for nearly a month as a result of the coronavirus COVID-2019 epidemic. In total, more than half of the population (760m) are …