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David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class

    Australia's 'Paradox of Thrift' Risks Japan-Style Price Weakness

    This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section:

    The irony of the parsimonious attitude toward pay is governments are throwing around billions of dollars in stimulus programs to support the economy and ratcheting up debt to an extent that makes such restraint almost irrelevant.

    To make the new wage guidance more palatable, the federal government scrapped a 2% cap on wage gains, meaning that when businesses are boosting pay, public servants could also enjoy larger gains.

    The danger is “a negative feedback loop becomes entrenched: low inflation outcomes lower the public’s inflation expectations, which in turn keeps inflation low,” said Sheard, who hails from Australia. “This in a nutshell is the story of Japan’s two-decade deflation.”

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    Murderers, rapists got unemployment money in $1 billion California taxpayer fraud

    This article from Mercury News may be of interest to subscribers. Here is a section:

    So far, investigations have uncovered more than $400,000 in state benefits paid to death row inmates, and more than $140 million to other incarcerated people in California’s 38 prisons, according to Sacramento County District Attorney Anne Marie Schubert, who helped organize and lead a task force that uncovered the alleged dupery. In total, payments to those ineligible due to incarceration in prisons and jails could total nearly $1 billion, the prosecutors claim.

    “The murderers and rapists and human traffickers should not be getting this money,” said Schubert. “It needs to stop.”

    Kern County District Attorney Cynthia Zimmer, whose district has five prisons, the most of any county in California, called the scope of the scams shocking. Zimmer said her office had found about $16 million in allegedly fraudulent claims in her county alone.

    “I’ve been a prosecutor for 36 years,” she said. “I have never seen fraud of this magnitude.”

    Newsom on Tuesday announced a task force to tackle the problem.

    “Unemployment fraud across local jails and state and federal prisons is absolutely unacceptable,” the governor said in a statement. “Earlier this year, I launched a strike team to expedite unemployment payments and to minimize abuse of the system. When we saw evidence of fraud in correctional facilities, I directed the Employment Development Department to review its practices and to take immediate actions to prevent fraud and to hold people accountable when fraud is not prevented.”

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    Email of the day - on the politicisation of monetary policy

    I hope life for you in California is more fun than it is here in England. But let's hope we really are past the low point as far as the virus is concerned. I had thought that would be true for economies too, but this latest move by President Trump (summarised in the article by Ambrose Evans Pritchard) does raise questions. With this move, which asset classes do you think will benefit and which will lose on a 3-6 month timescale?

    Best wishes to you and family. 

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    The Allure of GameStop's Stores

    This article by Joshua Brustein for Bloomberg may be of interest to subscribers. Here is a section: 

    Shankar, director of the Center for Retailing Studies at Texas A&M University. “There were two forks in the road. They could have scaled up online, or they could have moved into adjacent brick-and-mortar businesses. They chose brick-and-mortar, because it was lower risk in the short term,” Shankar said. “It was a missed opportunity and they’re still hurting from that.” 

    If GameStop knew what its problem was, why didn’t it do more to address it? Cohen and Shankar both cite internal resistance to change. That may be right, but it's not as easy as turning down the “physical retail” dial and turning up the “digital commerce” one. I’ve spent enough time in GameStops to come to appreciate their strange charms, and I can tell you that the company's unique advantages don’t necessarily translate to the internet.

    GameStop locations don’t seem like local bookshops or bike stores, but they bear similarities. Gaming remains enough of a niche interest that GameStop can create a sense of community just by employing people who know about video games and not chasing away the young men who make up a big proportion of their patronage. I’m now a lapsed gamer and wouldn’t exactly describe GameStop locations as pleasant. But there’s a kind of magic in a place completely dedicated to the activity that makes me want to clear my schedule, grab a controller and house a few Jolt colas. Plus the ability to pay for new games with old ones isn't a checkout option that is easily recreated in a mobile app. 

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    The Next Phase of the V

    Thanks to a subscriber for this report from Morgan Stanley. Here is a section:

    #1: A global synchronous recovery: We expect a broad-based recovery, both geographically and sectorally, to take hold from March/April onwards. Driving this synchronous recovery will be a more expansive reopening of economies worldwide and the extraordinary monetary and fiscal support now in place. Global GDP, already at pre-COVID-19 levels (based on seasonally adjusted GDP levels), continues to accelerate and is on track to resume its pre-COVID-19 trajectory by 2Q21. We expect China to return to its pre-COVID-19 path this quarter, and the US to reach it by 4Q21.

    #2: EMs boarding the reflation train: After a prolonged period in which EMs have faced a series of cyclical challenges, macro stability is now in check. With the COVID-19 situation improving in a broad range of EMs, their pace of recovery is catching up. EM growth rebounds sharply in 2021, helped by a widening US current account deficit, low US real rates, a weaker dollar, China’s reflationary impulse, and EMs ex China's own accommodative domestic macro policies.

    #3: Inflation regime change in the US: We see a very different inflation dynamic taking hold, especially in the US. The COVID-19 shock has accelerated the pace of restructuring, creating a significant divergence between the output and unemployment paths. With policymakers maintaining highly reflationary policies to get back to preCOVID-19 rates of unemployment quickly, wage pressures and inflation will pick up from 2H21. We expect underlying core PCE inflation to rise to 2%Y in 2H21 and to overshoot from 1H22, with the risk that it happens sooner.

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    EU Fights to Save Billions in Aid as Lagarde Demands Action

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Hungarian Prime Minister Viktor Orban says tying “political debates” to financial issues is a form of “blackmail” against countries opposed to migration.

    Poland said this week that the provisions are a first step to forcing it to accept EU regulations on gay marriage, abortion, euthanasia and press freedoms. “It’s a means of political, cultural and ultimately economic colonization,” Justice Minister Zbigniew Ziobro said.

    Highlighting the gaping divide, Dutch Prime Minister Mark Rutte called the current rule-of-law provisions the “bare minimum.”

    German Chancellor Angela Merkel has spoken with EU leaders in recent days, including Orban and Morawiecki. In a sign there’s unlikely to be a quick fix, she described negotiations as “extremely difficult.”

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    Top Ten Market Themes for 2021: A Shot in the Arm

    Thanks to a subscriber for this report from Goldman Sachs which may be of interest. Here is a section:

    1.Vaccine-led Recovery to Lift Cyclical Assets
    2. Navigating the Path
    3. A Steeper Real Yield Curve
    4. Europe: Two Steps forward, One Step Back
    5. China: Forging Ahead, with Assets in Tow
    6. A New Commodity Bull Cycle
    7. EM Outperformance: More than Before, Less than Sometimes
    8. Rotations: Cyclical, North Asia in Focus but Vaccine News Key to Near Term
    9. In Search of New (and Old) Safe Havens, Hedges and Diversifiers
    10. Risks from Corona and Beyond

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    Merkel Under Fire as Virus Strategy Sparks Anger From All Sides

    This article by Arne Delfs and Raymond Colitt for Bloomberg may be of interest to subscribers. Here is a section:

    Berlin police used water cannons to break up a large demonstration near Brandenburg Gate on Wednesday. Participants - - which totaled 14,000 people, according to police -- refused to
    abide by distancing and hygiene rules, while some threw bottles and other objects.

    Pressure has been growing on German authorities, which are facing a crunch meeting next week to lay out a long-term plan to fight the pandemic. With restrictions likely to be extended and intensified, public anger and political tensions are rising.

    The demonstration was organized to oppose a law being debated by the Bundestag that would expand the government’s powers to place restrictions on the public. Critics say the measures go too far. The far-right Alternative for Germany likened the legislation to policies under authoritarian regimes.

    While the freedom of assembly must be guaranteed, social distancing and other rules to contain the spread of the virus must also be respected, government spokeswoman Ulrike Demmer said during a regular news conference.

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    Nobel UN food agency warns 2021 will be worse than 2020

    This article by Edith Lederer for AP News may be of interest to subscribers. Here is a section:

    In April, Beasley said 135 million people faced “crisis levels of hunger or worse.” A WFP analysis then showed that COVID=19 could push an additional 130 million people “to the brink of starvation by the end of 2020.”

    He said in Wednesday’s virtual interview from Rome, where WFP is based, that while famine was averted this year, the number of people facing crisis levels of hunger is increasing toward 270 million.

    “There’s about three dozen countries that could possibly enter the famine conditions if we don’t have the money we need,” Beasley said.

    According to a joint analysis by WFP and the U.N. Food and Agriculture Organization in October, 20 countries “are likely to face potential spikes in high acute food insecurity” in the next three to six months, “and require urgent attention.”

    Of those, Yemen, South Sudan, northeastern Nigeria and Burkina Faso have some areas that “have reached a critical hunger situation following years of conflict or other shocks,” the U.N. agencies said, and any further deterioration in coming months “could lead to a risk of famine.”

    Other countries requiring “urgent attention” are Afghanistan, Cameroon, Central African Republic, Congo, Ethiopia, Haiti, Lebanon, Mali, Mozambique, Niger, Sierra Leone, Somali, Sudan, Syria, Venezuela, Zimbabwe, they said.

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    Pfizer Vaccine Partner Warns Against Winner-Take-All Mentality

    This article by Naomi Kresge for Bloomberg may be of interest to subscribers. Here is a section:

    Pfizer and BioNTech shares both dropped on Monday -- reversing a surge in response to positive test results last week -- after rival Moderna Inc. said its Covid vaccine was 94.5% effective in a preliminary analysis of a large clinical trial. Moderna also said its candidate has a much longer shelf life at refrigerator temperatures than the Pfizer-BioNTech jab, which would make it easier to store and ship globally.

    BioNTech is working on the storage issues, and Sahin said he’s confident that some of the current requirements around cold storage will change in the course of next year.

    The successes in the clinic come even as the pandemic looks increasingly bleak in Europe and North America. The U.S. surpassed 11 million coronavirus cases on Sunday, while in Germany, BioNTech’s home market, Chancellor Angela Merkel pushed for a tighter lockdown.

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