The stock market has rallied impressively over the last couple of months on enthusiasm about reopening and the growing conviction that the Federal Reserve is serious about not raising interest rates any time soon.

Nevertheless, while banks have the customer base and staff numbers to tackle the disruptive potentials of fintech startups, their responses have been quite passive.

Fintech companies like Paystack, PiggyVest, Kuda Bank and others are innovating past traditional institutions by making digital financial services like lending, savings, or investing readily available to people. They have been able to recognize the pain points for users, which have not been addressed by commercial banks.

Other fintech startups have fueled the growth of alternative lenders which offer both higher yields to investors and faster, cheaper, more convenient loans for borrowers compared to traditional banks. Startups like Carbon and Branch offer lower loan rates than commercial banks and this is mostly because fintech companies are not subject to the operational costs involved in running a traditional bank with multiple branches.

In an exclusive interview with Nairametrics, Femi Oshinlaja, the COO of Cassava Fintech, a pan-African Fintech Group that enables digital financial services for Africa’s mobile consumers, explained why digital solutions are fast spreading across the African continent by stating;

“With the growth in smartphone penetration and greater pervasiveness of the internet, we see the convergence of the online channels with more consumers opting to use digital channels to send money home as they see the convenience of doing so from the comfort of their homes and not having to queue to make the transaction in addition to the affordability of the online option.”

Massive populations of young ambitious people represent outsized potential demand for banking and credit services. Since the vast majority of Africans have no experience of the traditional banking relationship, they represent fertile growth for the fintech sector. As a result, Africa is likely to where we see active efforts to introduce a blanket form of digital payments.

Two weeks ago, Biden unveiled a $2.25 trillion plan to overhaul the country’s physical and technological infrastructure. He has said the plan needs to go far beyond bridges and roads and has called for investment in electric vehicles, renewable power and the electric grid.

Shares of Gerdau and Tupy are up 27% and 15% this year, respectively, while the benchmark Ibovespa index is down 0.6% and Weg is little changed.

“Limited geographical diversification puts a cap on Brazilian companies seizing this moment, but we can see some clear winners,” the analysts said. “Although we believe they have not gone unnoticed by the market, recent performance indicates that the impact is likely larger than what is currently priced in.”

Brazil is currently dealing with the challenge of rising pandemic case numbers and deaths. That’s a near-term challenge for the economic recovery and it might be a few months before the worst is over. 

South Africa’s central bank is likely to maintain its accommodative monetary policy stance to support the economy for as long as it has room to do so, according to Governor Lesetja Kganyago.

“As long as inflation is remaining contained, the central bank would have no reason to remove the accommodation that we are currently providing,” Kganyago said Thursday in an interview with Bloomberg TV.

The monetary policy committee has cut the benchmark interest rate by three percentage points since the start of 2020, of which 275 basis points of easing was in response to the impact of Covid-19 on the economy. That’s taken the rate to a record-low 3.5%. Last month’s decision was the first time since the 2020 rate cuts in which no member voted for a reduction and expectations have now shifted to when the first hike will come.

While the implied policy rate of the central bank’s quarterly projection model, which the MPC uses as a guide, indicates two rate increases this year of 25 basis points each -- next month and in the fourth quarter -- policy makers see risks to the inflation outlook as balanced and feel that they can continue to offer support to the economy, Kganyago said.

South African government bonds yield 9.08%. Obviously, in a world of ultra-low rates that outlier must exist for a reason. South African growth is expected to be in the order of 3% this year but the big question for investors will be on the trajectory of governance and the speed at which the pandemic can be overcome.

“We consider that both fiscal and monetary support are needed and will be needed until the pandemic crisis is over” and “will be needed well into the recovery,” ECB President Christine Lagarde says at Reuters event.

Preserving favorable financing conditions is a condition for the economy to recover -- “they go hand in hand”

The question is not whether the ECB will provide assistance but rather how much. The spectre of deflation has been hanging over Europe for most of the last decade and there is a credible argument the region is heading into a Japan-like era of lower consumption and low growth. Avoiding that potential is the primary goal of both the ECB and every Eurozone government.

Russia sold a record volume of ruble bonds as state banks continued to prop up demand and sanctions jitters faded after U.S. President Joe Biden proposed a summit with Russia’s Vladimir Putin.

The Finance Ministry sold 213 billion rubles ($2.8 billion) of fixed-coupon debt due in March 2031 in its second auction of the day, beating a record set two weeks earlier. The yield on Russia’s 10-year bonds fell the most since November as Tuesday’s phone call between the leaders appeared to reduce the possibility of penalties targeting the nation’s local OFZ debt.

“We’re seeing considerable demand once again, with big local players buying about 70% of both offerings today,” said Stanislav Ponomarev, a money manager at Transfingroup JSC in Moscow. “There’s been demand from foreigners since the morning, but it looked more like they were closing short positions rather than increasing their Russia allocations.”

The prospect of fresh sanctions has been mounting for the best part of a month and the recent troop buildup on the border with Ukraine has added to the tensions. State banks have stepped in to backstop the recent auctions as foreigners stay clear.

“The market was extremely negative on Russia,” said Sergei Strigo at Amundi Ltd. “Now there is a pullback on renewed hope of some sort of normalization in relationships, even if it’s short-term. Levels on the ruble and OFZs look much more attractive.”

How serious is the US administration in countering China? That’s the primary question for investors as they assess the potential for a normalisation of relations between the USA and Russia. As a major commodity producer, seller of advanced weapons systems and with significant experience in space, Russia is being courted by China.

There is one theme that seems to be running through every asset class at present. Perhaps it is because we have been locked up for a year, and literally can’t wait until it is all over, but there is a distinct air of impatience in every circle of life. The pandemic has accelerated the decision-making process for everyone in every facet of our lives.

Mrs. Treacy and I have been discussing moving from Los Angeles for two years but there was never a push big enough to stir us into action. We looked at Las Vegas suburbs in 2019 and toured schools but my eldest daughter was accepted into one of the most prestigious high schools in Los Angeles, so we decided to linger.

The experience of living in Los Angeles during the lockdowns, from schooling to public safety, made us impatient for a change. Like many others we decided to move and have only been delayed by reapplying to schools for our daughters and finding a suitable home.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic has been an accelerant. The full ramifications of what that means are becoming increasingly clear.

The pandemic took trends that have been in evidence for a while and exaggerated them. At the same time, it introduced new challenges which require new solutions.

Corporations operating without the safety net of cash on the balance sheet has been a feature of the markets for decades too. They continue to be bailed out when they get into trouble. There is no evidence that the trend of using all available means to buy back shares has ended. In fact, buybacks are back at pre-pandemic levels. Companies were touting “resiliency” last summer. It appears to have been just talk. Buybacks represent a powerful tailwind for stock markets that were absent for much of 2020 but are now back in force. 

A major undercurrent through the infrastructure plan is addressing inequality and expanding help for segments of society that the administration judges have been left out in the past. For example, in addition to fixing the “ten most economically significant bridges in the country in need of reconstruction,” there’s $20 billion for a new program that will “reconnect” neighborhoods that were cut off by past investments, such as the I-81 highway in Syracuse, New York. And all lead pipes will be replaced, to address water-quality issues.

$2.25 trillion is still a lot of money and if it passes it will represent a significant additional surge of liquidity through the economy. At a minimum that will help to spur commodity and building materials demand growth over the next decade.

After more than 20 years, the main Dutch equity benchmark is set to reconquer its record high. The AEX Index gained 0.6% on Tuesday to 702.44, surpassing a peak reached in September 2000 during the dotcom bubble era.

And just like back then, the technology sector has driven the advance. Chip stocks ASM International NV, BE Semiconductor Industries and ASML Holding NV have all more than doubled in price over the past 12 months, in addition to the online payments firm Adyen NV. But the old economy has also helped the index. Steelmaker ArcelorMittal SA is the best-performing stock over the period, as basic material shares climb on the prospect of China’s recovery and its hunger for commodities. The gains in Royal Dutch Shell Plc and ING Groep NV have also been major contributors.

Meanwhile, Amsterdam’s initial public offering market is on track for its best-ever first quarter with $5.7 billion of proceeds after hosting the 2.8 billion-euro ($3.3 billion) listing on InPost SA, according to data compiled by Bloomberg.

Since dislodging London as the continent’s top place to buy and sell shares following Brexit, the Dutch city has emerged as a strong contender as the venue of choice for new listings. Amsterdam has also become the premier destination for SPACs in Europe. The Dutch capital has hosted three of the six blank- check listings in the region over the past year. The latest of the cohort, EFIC1, which is backed by a former chief executive officer of Commerzbank AG Martin Blessing, fell as much as 1.5% in its debut session on Friday after raising 415 million euros.

“The AEX index is definitely a rare combination of good European tech companies with the addition of other top-of-the- class names in their relative industries,” said Alberto Tocchio, a portfolio manager at Kairos Partners, adding that the benchmark gauge is “a bit the Nasdaq of Europe, with the benefit of also having an exposure to some value sectors.”

The Euro’s weakness has been a tailwind for European equities on several occasions over the last decade. That’s equally true at present with the Euro pulling back and the larger European markets breaking on the upside.

A market optimist might brush off Friday’s massive liquidation as a one-off event — a huge stumble by a fabled player now in decline. But this is no time to be optimistic. Hwang is representative of, not distinct from, the rest of the hedge fund crowd. His bets are also their bets. He may have gotten margin calls faster because he was more leveraged. But his positioning is by no means unique — and that commonality is where trouble may lie. 

Take the trades involved. Media companies such as ViacomCBS and Discovery have net exposures that are the “highest level we have seen since 2016,” according to a recent note from the prime brokerage unit at Morgan Stanley, which, alongside Goldman, managed some of the block trades on Friday. Last week, when ViacomCBS was using the steep run-up in its stock to sell new shares and bolster its balance sheet, the pressure on leveraged hedge funds must have been intense. 

Rising yields and companies selling additional shares at rich valuations puts pressure on leveraged trades. It was inevitable that the rotation out of stay-at-home champions, who saw a one-time boost to business, would see a reality check in 2021. Last week’s block trades were an example of that.

Credit Suisse and Nomura took the brunt of selling pressure in the financial sector because of their net exposure. However, exposure has been limited within the broader sector so far.

Southeast Asia’s largest economy, Indonesia. is expected to see 67 per cent growth of its people becoming ultra-high-net-worth over the next five years, according to British property consultancy Knight Frank.

That’s those with personal wealth, including the value of primary residence, of more than $30 million. It’s not just the super-wealthy who are doing well. According to the World Bank Indonesia’s middle-class consumption has grown at an average annual rate of 12 per cent since 2002 and now accounts for almost half all household consumption.

The richer Indonesians get, the more they spend on cars, health, education and other services. Asia is the region where personal wealth is growing fastest and is already home to more billionaires than any other – 36 per cent of the world’s.

The rise of the middle class in ASEAN remains a secular theme because they have improving standards of governance, favourable demographics and higher growth potential. Indonesia is also a major exporter of commodities and has adopted an unobjectionable attitude towards China.

China hasn’t been this frugal in its cash offerings to banks in almost a year.

The People’s Bank of China has avoided net injections of short-term liquidity into the financial system since late last month, increasing concern that access to funds is becoming more difficult. The CSI 300 is headed for its steepest monthly loss in more than two years.

Japan’s Nikkei is falling for a fourth straight day after the BOJ said last Friday that it’s scrapping its annual target for stock purchases.

Stocks in both China and Japan had gotten used to these forms from the central banks. Now this backing, while not going away, is ebbing, and that could mean less central bank handholding for equities. 

The PBoC has been quite vocal in stating they do not want a bubble to form. They have very different priorities from the Federal Reserve. China’s administration wishes to preserve social harmony at all costs. In their view that is the only way to ensure the continued survival of single party rule. That means they will prioritise stability over asset price growth in the property or stock markets.

If that means restricting liquidity to the banking sector and curtailing the reach of the tech sector, those are deemed acceptable measures for China. The ChiNext Index is full of smaller companies that purportedly represent high growth. The Index has experienced it largest pullback since the lows and will need to find support soon if the benefit of the doubt is to be given to the recovery.

The final decision on next year’s budget will be taken by the government that takes charge of Europe’s biggest economy after Chancellor Angela Merkel steps aside following the election.

Merkel’s conservative CDU/CSU bloc is on track to lead the next administration and favors a return to frugality once the coronavirus recedes, while Scholz’s struggling SPD and the surging Greens have pledged to invest billions in technology and tackling climate change.

As things stand, Merkel’s bloc could form a coalition with the Greens, though the outcome is far from certain with discontent increasing among citizens weary of virus restrictions and unhappy with the slow pace of Germany’s Covid-19 vaccine rollout.

With the contagion rate on the rise again, Merkel is holding talks with cabinet ministers and regional leaders later on Monday to decide the next steps in the government’s pandemic strategy.

Generally speaking, the junior member of a coalition government comes out worse off after entering government. That’s because voters had faith in them to deliver on their promises, but the sacrifices they have to make to enter power mean their primary goals are unrealisable. At the same time the senior partner takes credit for any successes.

Vietnam is “more investable than many think,” with positive factors including accelerating FDI, a government push on infrastructure, structurally increasing purchasing power, and the rising profitability of the banking system, HSBC wrote in a note to investors.

• “Profitability, attractive valuations, strong balance sheets and market reforms point to the likelihood of a multi-year bull run,” HSBC said
• Likes Vietnam growth story, citing low inflation, a stable currency and healthy earnings
• Disagrees with common perception that Vietnam’s equity market is too small; says Vietnam now has 11 stocks with market cap of more than $5b vs 2 in 2015, while daily trading value has come close to $1b
• Says government has passed new laws that should reduce restrictions on overseas investors and put Vietnam in line for an upgrade to emerging-market status
• Says covered warrants and new diamond index are helping foreign investors gain exposure to companies at their foreign ownership limits

Vietnam is run by a communist party in the mould of China in the 1990s. They are primarily interested in economic development and raising living standards for the population. Dreams of global domination are not on the horizon. In fact, Vietnam’s primary concern is probably to remain independent and prosperous in an era of great power competition.

Singapore is viewed as a neutral city by Chinese technology companies as tensions continue to rise between Washington and Beijing. Tencent and Alibaba both announced last year that the city would serve as a key international hub, with Alibaba spending half a billion dollars to buy a skyscraper in the heart of the financial district in May.

ByteDance has not confirmed which of its international offices is its global hub outside China but its expansion in Singapore — it moved into a larger premises in a landmark office tower late last year — comes amid setbacks in India, the US and the UK, where it has been blocked or accused of breaching privacy regulations.

“As we grow our presence in Singapore, we continue to look for the best global and local talents to support our business and augment local skills and capabilities,” the company said.

The Financial Times reported last year that ByteDance could seek to separate TikTok and other units into a global business that was separate to its Chinese entity. Joe Biden’s administration is reviewing an executive order from former president Donald Trump that sought to force the sale of TikTok’s US operations.

Hong Kong is quickly being absorbed into the Chinese economy. That means its system of governance, with a focus on rule of law and contract negotiation, is being subverted by deference to political will. There is a need for an alternative East-meets-West centre. Singapore is well placed to fulfil that role.

“As the dust settles in the wake of today’s FOMC, we will be focusing upon whether any additional back-up in yields is accompanied by a further widening of breakevens,” said Richard McGuire, the head of rates strategy at Rabobank. “If so then this argues that the move higher in rates is sustainable.”

But as long as U.S. yields don’t rise in a chaotic fashion, risk assets including emerging-market and high-yield corporate debt are expected to outperform, according to BlackRock’s Seth. “Rates can drift higher and still remain a positive backdrop for the risk assets, as long as the vulnerability is under control,” he said.

A Bloomberg Barclays index on global credit returns has gained 11% over the past year, compared with a loss of 2% for a gauge tracking Treasuries. BlackRock switched to a neutral duration position in February from underweight. The fund likes notes sold by Chinese real estate companies and the nation’s onshore bonds.

“The lack of correlation with the rest of the global developed markets also provides a diversification benefit,” Seth said of Chinese debt.

The Fed remains wedded to its view nascent inflationary pressures will not last long. There is a logical argument to support the view that the bounce back from the pandemic lows is exaggerated by the base effect and everything will settle down over the course of the next year or two. Since the Fed is willing to wait and see with inflation, it could be two full years before they are willing to draw firm conclusions.

Lennar Corp. soared after the homebuilder said it will create a spinoff with at least $3 billion in assets.

The new company, which will have $3 to $5 billion in assets and no debt, will include Lennar’s technology investments, according to an earnings call Wednesday.

Lennar, which said it made about $470 million on its investment in Opendoor Technologies Inc., jumped as much as 9.5% to $97.09 in New York. The stock had gained 16% this year through Tuesday’s close.

Miami-based Lennar reported orders on Tuesday that beat estimates as it benefited from the pandemic housing market. It got also a boost from Opendoor, which began trading in December.

Lennar said two other “technology-driven” companies it has invested in also have announced agreements to go public through mergers with special purpose acquisition corporations, or SPACs.

Those companies are Doma, formerly known as States Title, and Hippo, the home-insurance startup that’s merging with a blank-check company led by Zynga Inc. founder Mark Pincus and LinkedIn co-founder Reid Hoffman

It is a clear sign of the times that a home builder, which is about as brick and mortar as it gets, has upwards of $5 billion in technology investments. It’s good news that the company has made wise decisions in what are now highly valued digital assets. However, that decision to prioritise risk in non-core businesses is also a symptom of the wider lack of building new homes that has been a feature of the recovery from the 2007-12 housing recession.

To achieve this objective, the government’s economic strategy consists of:

• operationally independent monetary policy, responsible for maintaining price stability and supporting the economy;
• a credible fiscal policy, maintaining sustainable public finances, while providing the flexibility to support the economy;
• structural reform to level up opportunity in all parts of the UK and to transition to an environmentally sustainable and resilient net zero economy, including through regulation, and an ambitious programme of investment in skills, infrastructure and innovation, in order to sustain high employment, raise productivity and improve living standards;
• maintaining a resilient, effectively regulated and competitive financial system that supports the real economy through the provision of productive finance and critical financial services, while protecting consumers, safeguarding taxpayer interests and supporting the transition to a net zero economy. 6

ACCOUNTABILITY
The Monetary Policy Committee is accountable to the government for the remit set out in this letter. The Committee’s performance and procedures will be reviewed by the Bank of England’s Court on an ongoing basis (with particular regard to ensuring the Bank is collecting proper regional and sectoral information). The Bank will be accountable to Parliament through regular reports and evidence given to the Treasury Committee. Finally, through the publication of the minutes of the Monetary Policy Committee meetings and the Monetary Policy Report, the Bank will be accountable to the public at large.   

Central banks are “operationally” independent. All that means is politicians do not get involved in their day-to-day affairs. The central bank still takes orders from politicians. When elected officials feel the “need” for change they simply announce it in the budget. Today we “need” to save the planet so it is now the central bank’s job to do that.

“Singapore stocks look attractive because of their relatively better valuations and high dividend yields,” said Stuart Rumble, a multi asset investment director at Fidelity International. The large share of property firms and banks also make the market “highly geared” to economic re-opening, he added.

The Straits Times Index closed up 1.2% on Tuesday to the highest in more than a year. The gauge is trading at 14.7 times 12-month forward earnings, behind most of its regional peers and the MSCI Asia Pacific Index’s 16.8 multiple, according to Bloomberg-compiled data. The Singapore gauge’s dividend yield is estimated at 3.8% for the next 12 months, higher than the regional benchmark’s 2.3%.

The export-oriented economy suffered its biggest contraction since independence last year due to the global pandemic. Now, new daily Covid-19 infections locally are hovering near zero and the government expects growth to rebound to between 4% and 6% in 2021.

The three local banks -- DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. -- that make up nearly half of the index’s weight, contributed the most to the benchmark index’s rise amid higher yields, climbing more than 10% each this year. Investors are awaiting the easing of a regulatory cap on bank dividends introduced last year.

The Singapore Dollar is a strong regional currency that does best in periods of economic growth led by Asia. The rate has been ranging between S$1.3 and S$1.45 since 2015 but that situation may now be coming to a conclusion as Asian growth ramps up following a milder contraction than the rest of the world and with a rebound fuelled by positive demographics.

I am shocked at your remarks about China. It is not the China I know, and have seen develop over the last 40 years. A country where Harvard (Ash Center 9 July 2020) surveys found 95.5 percent of respondents were either “relatively satisfied” or “highly satisfied" with their government compared with 38% in the US.

The article from Politico is am interesting read, but does not mention that a partner of the Wuhan Institute was the US Galveston National Laboratory, of whose activities we know very little too.

Bad things happen in every country, including China and the US, but it behooves us to have a sense of proportion and get the facts both right and complete. Take one example: you mention a man in China who altered a gene to suppress HIV - he ended up in jail for breaking the rules.

I am sure you would embrace Deng Xiao Ping's instruction "find the truth through facts", and please recognize that most of the almost 1.5 billion people in China have just finished a perfecting satisfactory day!

And this from David Brown:                 

Thank you for this article and comment Eoin. On February 13 2020 I gave a presentation at my company's All Hands meeting about the viral epidemic in China. I made slides describing the evidence trail going back many years that indicated it was manufactured in the Wuhan lab. I removed those slides at the last moment as the meeting organiser gave me just 10 minutes for a 30 minute presentation - as you can imagine, the remaining content of the 1 hour meeting was trivia. Staff reaction to my presentation could be described as 'has he gone crazy!' They thought I was exaggerating. Nevertheless, I had them practice 3 days working from home, and we have not returned to the office since those days. I am sad to say that woke culture has come into the company as it has expanded over the past year with naive virtue-signalling new recruits, and I would be causing a storm if I now presented those slides showing the likely origin of the virus or showed them your comments. It's a sad world that has emerged in the past couple of years. I am glad I do not have many years to live.
 

Thank you both for these comments which are representative of the divide in perception. I might also add we all wish a mind such as David Brown’s will be with us for years to come.

No country is perfect and most have some part of their history they are embarrassed about.  However, there is the world of difference between countries with an independent judiciary and free press compared to authoritarian regimes. Freedom to discuss alternatives and to openly air grievances is the basis for western liberal society.

Monday’s rally came despite short interest being near the lowest level in at least a year. Roughly one-quarter of shares available for trading are currently sold short, according to data compiled by S3 Partners. That compares to a peak of more than 140% in January.

“Shorts will continue to be squeezed out of their positions as GameStop’s stock price continues to trend upwards,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Shorts sellers are down nearly $6 billion in year-to-date mark-to-market losses, including $609 million in Monday’s trading alone, Dusaniwsky said by email.

The rebound of reflation plays and retail investor favourites is partly a response to short-term oversold conditions. It is also because $1.9 trillion is still a lot of money, even after a decade of printing.

$1400 for individuals and each child as well as extended benefits the unemployed means many families will see bumps of several thousand dollars in the nest month.  According to this calculator a family of four with an income of $70,000 per annum would receive a payment of $5,600 or 8% of income. 

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The rollout of vaccines to COVID-19 continues to accelerate and that will continue through the balance of the year and 2022. There is encouraging news about the number of different vaccines which have been approved and their success against variants. By the end of the year, the world will be inundated with doses which will provide at least some protection from the virus for anyone who wants it. That’s all the rationale any government needs for reopening the economy.

On Valentine’s Day 2020 Mrs Treacy and I went out for dinner with another couple. We talked about the news of a virus threat from China and how it could potentially cause ructions further afield. We told them we had stocked up on rice, meat, protein bars and batteries just in case. They thought we were crazy crackpots jumping at shadows.

It was hard to imagine then just how disruptive the decision to lockdown was going to be. A similar condition exists today. After a year of being confined to our immediate vicinity it is tempting to think this is how it will always be. The reality, however, is we are going to see a surge back to normalcy much quicker than most believe possible.

Humans are social animals and we yearn for social contact. We’ve been starved of that basic need for a year and we’ll overdose on it when we are able. That suggests we are looking at a boom in consumer activity over the coming couple of years.

Like everyone else, Grice is attempting to parse the evolving socio-political environment. He likens the current media revolution to the effect the printing press had on the social makeup of Europe which led to the Reformation and 30 Years War.

Interest rates have been negative in Europe for years. But it took the flood of savings unleashed in the pandemic for banks finally to charge depositors in earnest.

Germany’s biggest lenders, Deutsche Bank AG and Commerzbank AG, have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.

That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away. Banks are even providing new online tools to help customers take their deposits elsewhere.

Banks in Europe resisted passing negative rates on to customers when the ECB first introduced them in 2014, fearing backlash. Some did it only with corporate depositors, who were less likely to complain to local politicians. The banks resorted to other ways to pass on the costs of negative rates, charging higher fees, for instance.

The pandemic has changed the equation. Savings rates skyrocketed with consumers at home. And huge relief programs from the ECB have flooded banks with excess deposits. Banks also have used the economic dislocation of the pandemic to make operational changes they have long resisted.

There are two big questions that arise from charging depositors to hold funds in their bank accounts. The first is the benefit banks receive from now being able to pass on costs to customers. The second is the quandary savers are put in.

Twitter announced a pair of big upcoming features today: the ability for users to charge their followers for access to additional content, and the ability to create and join groups based around specific interests. They’re two of the more substantial changes to Twitter in a while, but they also fit snugly into models that have been popular and successful on other social platforms.

The payment feature, called Super Follows, will allow Twitter users to charge followers and give them access to extra content. That could be bonus tweets, access to a community group, subscription to a newsletter, or a badge indicating your support. In a mockup screenshot, Twitter showed an example where a user charges $4.99 per month to receive a series of perks. Twitter sees it as a way to let creators and publishers get paid directly by their fans.

Direct payment tools have become increasingly important for creators in particular in recent years. Patreon has been hugely successful, and other platforms including Facebook, YouTube, and even GitHub have all launched direct creator payment features. Twitter will presumably take a cut — the company has been hinting at subscriptions features that would offer it a new source of revenue — though it doesn’t appear to have said yet what that fee will be.

This announcement suggests Twitter is serious about starting to make money. The creation of a sales funnel so members with substantial followings can monetise that interest is a business model that has grown in popularity during the pandemic.  

We are seeing a significant increase in demand across all price points and all suburbs,” said real estate agent Ben Collier, who handled the Paddington sale. Usually “you see different markets moving at different speeds, whereas it seems to be somewhat more uniformed right now.”

In New Zealand, where home prices soared 13% in January from a year earlier, the problem is so acute the government will now require the central bank to consider the impact on housing prices when setting interest rates, a change the bank opposed. The Reserve Bank of New Zealand is also reimposing lending restrictions on property investors in an attempt to cool the market.

Fears that Australia’s housing market would be flooded by distressed sales as people were thrown out of work by the pandemic have faded as the economy recovers faster than expected, and people resume paying their mortgages after being offered six-month loan holidays last year.

Instead, a shortage of supply is helping fuel the price boom. The number of houses advertised for sale in the first three weeks of February was down 26% from a year earlier, CoreLogic said.

“Housing inventory is around record lows for this time of the year and buyer demand is well above average,” Lawless said. “These conditions favor sellers. Buyers are likely confronting a sense of FOMO, which limits their ability to negotiate.”

This is a familiar story from all over the world. There is low supply because many people are worried about moving during a pandemic. At the same time there is increased demand because other people feel they have more cash and need to move because of personal circumstances. The combination is leading to rising prices across the board. Record low interest rates are fuelled the advance.

“This road map should be cautious but also irreversible,” the prime minister told members of Parliament in London. “The end really is in sight and a wretched year will give way to a spring and a summer that will be very different and incomparably better than the picture we see around us today.”

While U.K. leisure and travel stocks jumped as Johnson revealed his timeline, he is already facing pressure to move faster after the economy endured its deepest recession in more than 300 years. Chancellor of the Exchequer Rishi Sunak will announce more support for pandemic-hit businesses in his budget next week.

Psychologically, we tend to remember the totality of an experience based upon how well it ended. That’s why bubbles are always remembered so negatively. People forget the euphoria of the advance and focus instead on the trauma of the subsequent decline. 

As we exit lockdowns, worrying about mask protocols, handwashing and social distancing, will we now remember the pleasure of that first meal out, meeting up with friends, going to that first football game or concert more than the year of watching and waiting? In a couple of years, we might be yearning to spend more time with our families and a less hectic schedule.

At Greatest Risk from Higher Bond Yields? Eoin, we have seen some sizable sell offs in recent weeks from the hottest sectors such as Green Power, and the various Innovation Funds/ETFs as well as Electric Vehicle sector. As you'd pointed out, they are benefit from super low rates as growth is essentially free. What risk for EM though, which otherwise has been on cruise control of late? Today has seen a sizeable sell off, but is this just the first shot across the bow? Which of the EMs would you be most guarded against? What else might be at greatest risk given the run ups we have had in markets over the last 12 months?

The ARK Innovation ETF has pulled back by about 20% over the last six sessions. That’s a sizable pullback but the fund was up 383% since March 2020 so it was due some consolidation. This reaction has broken the 12-month sequence of higher reaction lows so the trend is no longer as consistent as it was on the way up.

There have been many false dawns in China’s quest for the yuan to challenge other major currencies. But underpinning the explosion this time lies a torrent of capital flowing into China’s markets, fueled by a frantic search for returns with over $14 trillion of debt globally paying less than 0%.

That appetite for some of the highest-yielding government bonds in the Group-of-20 countries has elevated interest in China to fever pitch and is generating demand for liquidity from investors looking to finance and hedge their investments. It’s also spurring volatility and attracting speculators who overlooked the market for years.

“It’s certainly a top currency in terms of the flow that we’re seeing,” said Kevin Kimmel, New York-based global head of electronic FX at Citadel Securities, one of the world’s biggest market makers. “Trading activity in the yuan has increased significantly.”

The shift comes as China continues to relinquish control -- albeit slowly -- of its tightly-managed currency, a linchpin of Beijing’s long-term plan to encourage its greater global use. China is considering easing restrictions on citizens investing in securities outside its mainland, a move that would facilitate two-way capital flows.

Capital is both global and mobile and it will always flow to the most attractive assets. There are no developed markets where one can pick up a yield above 1% in an appreciating currency. Investors have no other choice than to look elsewhere.

In doing so, they have to weigh how likely it is that tensions with China are likely to escalate. With a new US administration, the potential for surprises is lower and therefore the risk from investing in the renminbi is reduced but not eliminated. This trend of Renminbi strength has been very persistent since March and some consolidation will occur eventually.

A link to the full report is posted in the Subscriber's Area. 

A link to the full report is posted in the Subcsriber's Area. 

Pakistan is a frontier market. That means it is heavily influenced by investor flows. Any market is priced by the actions of the margin buyer. When international investors are repatriating capital it weighs heavily on the fortunes of frontier markets but the opposite is also true. Prolonged periods of inflows can boost frontier markets to significant positions of outperformance.

Valuations can be attractive for prolonged periods but it is when the currency moves in the favour of international investors that activity really starts to pick up. At that point perceptions of whether governance is improving and whether that is sustainable will influence how durable a recovery is.

In response to the new subscriber who voiced frustration, I offer these comments.

As a long-term subscriber (and investor for several decades) I have found Eoin's 'big picture' view very helpful and accurate over the years.

From my own study and experience, I have learned that one needs to have 2 factors in mind all the time:

1. What are the likely drivers of money flow into particular asset classes

2. Is that expectation actually being reflected in sector performance

The gains in our investments are determined much more by the sectors we choose than the individual shares. Some people say '90% performance depends on sector choice'. There's a lot of truth in that, and Eoin constantly points to the interesting sectors. So, I rank sectors each month. That is my primary focus. The chart library offers a great way to do that via the tab 'filter' / 'performance filter'. It's super-fast once we have set up a list of sector indices in our Favourites. I know no better way to do it and I can only be grateful to Eoin for the way he redesigned the chart library some years ago (and lot of effort and cost).

I then find the best performing shares in the top ranked sectors of interest and record their performance at 1 month, 3 months, 6 months, and 12 months. If the numbers are increasing steadily across those time periods it identifies a strong trend. If the 1 month and 3-month performance is higher than 6 months and 12 months it identifies a possible breakout. I then check the steadiness of the chart patterns and the rate of gain (>30% annualised) before finally deciding whether to be interested.

Then I spread my investments across at least 4 of the best performing sectors, preferably as uncorrelated as possible,

That way I have beaten 99% of funds and most indices most years.

As Eoin states, private investors have a huge advantage over fund managers. We can increase cash - even to 100% at times - and avoid big falls in our portfolio value.

We have to be very analytical and unemotional. It feels hard to buy shares at the time that it's best to buy. I find that having a rule-based system has served me well. We all have to develop our own rules though, for three reasons.

First, we are all different, and someone else's investment style will not work for us.

Second, we will never have sufficient confidence in someone else's rules. Third, we will only learn and improve based on our mistakes if we develop our own methods.

I hope this helps new investors and new subscribers to Eoin's wonderful service.

Thanks for this generous exposition of your method which will be of interest to the Collective. I created the Performance filter so it would easy to rank asset classes. For the much of the last few years investors have not been under pressure to actively manage their exposures. The strength of the Dollar and the technology sector have blown just about everything else away in terms of their performance. As the Dollar’s trend reverses, finding the best asset classes to be in, on an international basis will return to importance for investors.

Here is a video of how to create sections in your Favourites and how to use the Performance Filter.

In the video I created a list of asset classes which I believe is reasonably reflective of the global investment picture. If subscribers would like me to add additional asset classes that should not be a problem, provided we have them in the Chart Library.

Firstly, thanks for the terrific service, it’s been so helpful in these turbulent times.  I was interested to read the subscriber feedback in today's comment. 

I agree with the comment that sometimes it’s quite hard to find investable ideas in some of the themes that you so accurately pick up on. 

For example, soft commodities/agricultural products, some direction as to likely beneficiaries would be really helpful.  I’m a UK based investor, so in general like to stick to our market or Europe and it has not been easy.  Perhaps Bayer?  ABF but the Primark exposure is confusing.  In the Eoin’s Favourite’s section of the chart library some of the categories do help, but there’s doesn’t seem to be one directly related to rising soft commodity prices other than farm machinery or fertilisers?

Lithium is another one where I am struggling to find the right investment, even though I looked at your collection of related companies.  As the price seems to have broken out of a long-term downtrend some suggestions as to likely beneficiaries would be really helpful, although understand that one must also do one’s own research.

With Bitcoin, which I’m not that keen to buy, but you highlighted the Greyscale Bitcoin Trust which although I’ve not invested in it was really helpful to have an idea related to the concept you were right about. 

Hope this feedback helps and thanks again.

And

I found the criticism yesterday, a bit harsh.  There are few sites that provide the breadth and depth that we get from FTM.  Here, in West Aust, I wake each morning to your market summary of the principal events.  I find it cost effective for that point alone.

The suggestion above regarding missed opportunities is one worth pursuing, not so much regarding the chartbook but for highlighting early chart indications of emerging opportunities.  I feel that perhaps FTM may report facts that are available elsewhere but the site is not fully exploiting your chart analysis skills that are not available elsewhere.  You should exploit your strengths and don't reproduce stuff that is, or soon will be, in the media. We all want to know where Eoin Treacy sees emerging or imminent changes. 

Thank you both for this feedback and your kind words. I am a firm believer in giving the people what they want. Afterall, why else would one subscribe. Let me address the challenges in the order they are outlined in the above emails.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “secular themes review”. 

Highlighting secular themes has been a hallmark of this service for as long as I have been a part of it. I first met David Fuller in Amsterdam in 2003. He was giving a talk to Bloomberg’s clients and we went out for dinner that evening. His way of looking at markets, with a focus on suspending ego to see what the market tapestry is telling us, answered all of the questions I had about how to interpret
markets. I felt honoured when he asked me to come work with him a few months later.

The easy way to find secular themes to is to look at long-term ranges. Prices can so sideways for a long time, sometimes decades, and the whole asset class can be forgotten by investors. These kinds of markets need a catalyst to reignite demand. Once that new theme gathers enough pace, prices break on the upside because the supply side is not capable to responding in a timely manner to the new phenomenon. Sometimes that’s because they don’t believe in the new trend, or it may be because they simply do not have the financial wherewithal to expand. As the power of the new catalyst gathers, it takes time for supply to respond and the market will proceed higher until there is a robust supply response. That can take a long time because demand continues to grow as the new theme increases its dominance of investor attention.

“Put buying en masse would add to dealers’ short put positioning and could create much more severe structural leverage imbalance to the downside,” said Cem Karsan, founder of Aegea Capital Management LLC and a former options market maker.

Karsan, who has 24,000 Twitter followers, floated the scenario on The Derivative podcast last week.

The Squeeze
Once an obscure dynamic in the market plumbing, gamma squeezes are the talk of both Wall Street and the amateur crowd following the GameStop drama.

It goes like this. When an investor buys a call, the dealer who sold the contract will typically hedge by purchasing the underlying stock. The more the latter rises toward the option’s strike price, the more shares the market maker will theoretically have to buy. That can supercharge stock prices as shares rise and dealers buy more.

And the dynamic works in reverse, too.

Dealers who have sold puts will hedge themselves by selling the underlying shares. As the price drops toward the option’s strike, they will sell more and more.

Mobs are emotional, extremely aggressive, thrive on contradiction but they are also fickle. They can look like the strongest army in the world until they lose cohesion. Then they fall apart and turn into the weakest. Mobs thrive as long as they are growing and the reason for that growth is still compelling. As soon as it ends, they dissolve quickly. As GameStop’s mob dissolves it might be some time for a crowd to coalesce around a new idea. There are plenty of candidates from biotech to silver to micro-caps and cryptocurrencies.

Section 1 Global Macroeconomy: State of Play and Outlook Part 1 and Part 2

Section 2: Financial Markets Part 1 and Part 2

Section 3: Best Ideas

 

I enjoyed this series of roundtables last year and this year did not disappoint. The points made are all relevant to the market environment as we see it today. Ther participants expressed a great deal of fear that we are dangerously close to a bubble peak. There is a lot of worry about valuations, social unrest and the effects on the credit worthiness of the corporate bond market, when the Fed is backstopping it.

I live in Israel and so can share with you what I am seeing on the ground. Israel's results would have been even better if we did not have two internal communities whose behaviour is the main cause of the high contamination rates. The ultra-orthodox Jewish minority (about 15% of the population) refuses to obey the rules of social distancing. The members of this community insist on gathering together to pray and to study the religious texts. They make up about 40% of the positive cases and deaths from Covid. The Arab citizens of Israel also resists the social distancing rules and they are the other cluster of positive cases and deaths. Many of them fear that the vaccine is an Israeli plot to weaken them. The rest of the Israeli population is obeying the rules and that is why the situation is very good. At the same time as the mass vaccination there is very strict lockdown. This will probably continue for some time until so many people have been vaccinated that there is a mass immunity. The Palestinians in the West Bank have, unfortunately once again chosen an unsuccessful strategy. Under the Oslo Agreements, the Palestinian Authority is responsible for health. The PLA decided at the start of this crisis not to cooperate with Israel, but to rely on the UN for its vaccine. This is why the Arab population of the West bank is lagging behind on being vaccinated.

Thank you for this insight. There is a significant population of people in most countries who for varying reasons will not take a vaccine. In Israel it might be the Orthodox or Arab populations, but in the USA, there is a significant and highly vocal anti-vax community which conservatively reaches about 15% of the population.

Additionally, the black community has the been the subject of botched medical experiments in the past. Many people are leery of taking vaccines. That’s before we even begin to think about the online conspiracy theories that have been circulating over the last 12 months and have certainly affected sentiment. This article from NBC news highlights the fact that 70% of nursing home staff are refusing to get the shot. https://www.nbcnews.com/news/us-news/nursing-homes-make-big-push-change-minds-workers-who-refused-n1254509

I think it is safe to say there will be a significant minority that refuse vaccination in most countries. As we process into the year, there will be more vaccines permissioned and production will ramp up. By December there will be a surfeit of doses. By June, anyone who wants a vaccine will be able to get one I suspect. The big question at this stage is whether the conscientious objectors to taking a vaccine will be allowed to travel, work or study without one.

There is no doubt that COVID-19 is deadlier than the flu. An uncomfortably high percentage of people who develop severe symptoms, which require hospitalisation, experience a lengthy recovery. Aches and weakness are among the most common issues reported. However, risk remains concentrated in the ranks of the elderly and those who are already ill with chronic conditions.

It was obvious as early as August that a massive public information campaign would be required to ensure a successful inoculation program. That didn’t happen so there is a clear risk of difficulty in reaching the herd immunity threshold. Forcing vaccination is a serious infringement of civil liberties but it is actively being considered.

My own view is anyone who habitually gets the flu vaccine, will have little issue with getting the COVID vaccine. Meanwhile, the trial of ivermectin as a treatment for COVID-19 in the UK might prove to be the bridge between the anti-vaccination movement and the desire to reach herd immunity as quickly as possible.

I wanted to provide some input to the question you asked subscribers today on how we are invested and cash levels.

I am close to 70 years old and just retired. My investment portfolio is my pension which comprises stocks and property. For me, within my own fairly conservative criteria I am close to fully invested in the stock component of my pension. In the final 4 months of last year I invested additional cash in FTM themes such as  emerging markets, metals and mining and renewables. A large portion went to South East Asia where I have built some knowledge over the years and saw real value, often with good dividend yields. The remainder of my portfolio is in a portfolio of US stocks which I have managed for some years but the contents of which I rotate as trends change. A small percentage is in continental Europe plus UK Investment Trusts the latter following FTM themes. I have additional cash available which I might invest in stocks if the market declines providing a buying opportunity or I may invest in property if a suitable opportunity arises. But the cash will be invested either in stocks or property  within the coming year.

 

I also maintain a cash or cash equivalent position amounting to several years living and recreation costs which will never be invested in stocks. Maybe overly conservative but I’ve been investing from the mid 1980’s, when I first subscribed to FM, and this way I can sleep at night knowing I wont need to sell assets to fund living costs.  

And

I am usually about 20-25% in cash. Now about 50% and I almost feel like I should be 75-80% in cash.  Just don't see why the world is so much better now vs 1 year ago today pre-covid-other than low cost of money.  Seems like a lot of pent-up demand and fear not to get in has made the market frothy...kinda like the run on toilet paper......

Thanks to a number of subscribers for responding. The responses so far tell me that while there is evidence of froth in the market, we are not at a point where there is a risk of an imminent end to the reflation. Many investors went 100% to cash in the summer and are still only beginning to get back into the market.

“To build small circles and start a new Cold War, to reject, threaten or intimate others, to willfully impose decoupling, supply disruptions, or sanctions, or to create isolation or estrangement, will only push the world into division and even confrontation,” he said.

Xi’s speech had been widely anticipated for the tone it would set for relations between the world’s biggest economies over the next four years. Though Xi did not name Biden by name, many of his comments were clearly targeted at the new U.S. administration.

Xi repeated many of the same talking points about multilateralism and “win-win” outcomes that he deployed in his last address to Davos four years ago, days before Donald Trump’s inauguration, but he also signaled that he does not intend to change course in the face of U.S. pressure.

“Each country is unique with its own history, culture and social system, and none is superior to the other,” Xi said, warning against imposing a “hierarchy on human civilization” or forcing one’s own systems onto others.

This all sounds very reasonable and is a perfect example of China’s efforts to exude a façade of reasonableness. Perhaps it would be better to measure China’s actions in the four years since Xi’s last speech to Davos where much the same call to embrace appeasement was made.

From a broader perspective, inflation results from demand exceeding supply, but since globalization commenced three decades ago, it’s been an excess supply world. Asian countries are big producers of exports they send to the West, but they’re weak consumers. China’s consumer spending is just 43% of GDP, compared with 68% for the U.S. So the resulting Asian saving glut generates price-depressing excess supply. Barring a tariff wall that seals off imports from Asia, any revival of U.S. consumer spending wouldn’t be big enough to eliminate global excess supply. And President Joe Biden is less zealous on the trade war with China than former President Donald Trump.

Finally, note that some investors aren’t anticipating surging inflation and interest rates. Technology-related and other growth stocks have low earnings yields, the inverse of price-to-earnings ratios, which are justified by low interest rates. The theory is that their present stock values equal the discounted value of future earnings, so the lower that discounting interest rate, the more their equities are worth
today.

Earnings of $10 in 10 years hence is worth $9.05 today with a 1% discounting rate, but only $5.58 at 6%. So if investors expected a leap in inflation and interest rates, they’d probably be dumping growth stocks now.

Is it different this time? That’s the big question for anyone who has been monitoring the markets for the last few decades. Every time we see a recovery from a major decline, there is evidence of inflationary pressures beginning to rise. In 40 years, they have not proved to have staying power.

A link to the full report is posted in the Subcsriber's Area.

The US government expects to issue about $1 trillion more bonds than the Fed currently expects to buy in 2021. Without a clear move to boost the amounts committed to the bond buying program yields will inevitably rise. It’s a simple supply and demand argument. Of course, no one really believes the Fed will fail in its commitment to provide assistance while unemployment is well above trend.

Until the beginning of last year you often spoke on the theme of the early stages of a secular bull market. David had begun speaking about it as long as 4 years ago. But with the onset of the pandemic, you have been largely silent about it. Has it stalled or, in your view, already peaked?

Thank you for this important question. In October 2008, I remember sitting at my desk and looking at the calculation that the S&P500 was sitting on the widest overextension relative to the 200-day ever. Acceleration is always a trend ending and the crash signalled the beginning of the bottoming process. By the time Wall Street reached its nadir in March 2009 many instruments were well off their lows and by the end of the year the leaders were making new highs.

Gold, commodities, ASEAN and technology took off. Of these, technology is the only one which had uninterrupted staying power all the way through the bull market to date.  

I started writing Crowd Money in 2011. At the time a host of big international companies, with global franchises, that dominate their niches were breaking out of long-term ranges. It was a clear signal that a new secular bull market was underway. By the time the book was published in 2013, it was still a minority view that a new bull market was underway.

There is nothing in the financial markets that can’t be made better with leverage. That’s the foundation most trading operations are based on. One of the most common trade patterns is to source cheap funding in a currency which is depreciating in value. That way when it comes to paying back the loan, you get to keep the profit on the currency trade as well as any gain from the assets you invested in.

Japan’s zero interest rates made it an ideal candidate for carry trades but the propensity for the Yen to strengthen meant that short yen carry trades tended to be rather volatile. It was common in the decade up to the introduction of Abenomics in early 2012 for unwinding of carry trades to contribute to profit taking across global markets.

As interest rates have trended towards zero across the world the opportunity to access cheap funding in a wide array of currencies has never been greater. The challenge today is to find the currency most likely to decline versus assets with high growth and yield potential.

Thanks so much for the terrifically informative analysis that you continue to provide. The quality of your work is simply jaw dropping at times. But I wonder if you could please clarify one thing. Would you mind defining more clearly what you mean by the term “financial repression”? I can certainly search this, but I’d like to know what it means to you.

Thank you for your kind words and I’m delighted you enjoy the service. The term “financial repression” is emotionally charged because of its historic significance. After World War II the US government paid back its war debt by inflating it away. That was a deliberate policy where interest rates were held at a low level for a prolonged period, taxes were raised and inflation eroded the debt over decades. From an investors perspective it was akin to the government reaching into your pocket and taking your money.

Russia may almost double a planned levy on wheat exports and impose new restrictions on barley and corn in an effort to curb food prices, heightening supply risks for global grain markets.

Officials in the world’s top wheat shipper will meet Friday to review grain-export duties and may increase a planned tax on shipments to 45 euros ($55) per ton from March 15, a spokesman for the Agriculture Ministry said. That compares with a 25-euro levy approved last month for sales from mid-February through June, as well as a quota on grain shipments.

The moves come after President Vladimir Putin’s call to cool food-price inflation because of sharp increases for staples like bread and sunflower oil last month. The threat of heightened restrictions from a major exporter helped stoke wheat futures in Chicago and Paris, and adds to concerns of crop
protectionism as grain prices rise.

Export restrictions might curb domestic food price inflation but will exacerbate it everywhere else. We are on the front end of significant commodity price inflation. The three most important food commodities are wheat, soybeans and rice. All have completed base formations. No one single factor creates more social unrest than a surge in basic food commodities. The high cost of bread in Tunisia was once of the causal factors in the origin of Arab Spring. Considering the extend of social unrest seen in the last 12 months it is quite likely we are going to see significant unrest in 2021 if food prices continue to rise.

All Israelis are insured by one of four national health maintenance organizations (HMOs), whose clinics and hospitals are spread throughout the country. They are competitive, but the price of membership, co-payments and treatments are regulated and uniform. So is the subsidized “basket” of medication, procedures and treatments. These are decided by a national board of experts. Medication is bought by the government and centrally distributed via a single company. All medical records are online, available to hospitals, doctors and the Ministry of Health.

This makes Israel especially attractive to Pfizer and other vaccine producers. HMOs know who has been vaccinated and in what order of priority. They know who has returned for a booster shot and who has opted out. Israel knows the ages, medical conditions and other demographic information of a heterogeneous population. And all this data is held by the Ministry of Health. It is a treasure for testing efficacy of the vaccine among various groups and the relative amount of vaccine needed for efficacy. Israel will be likely to be the first country to know the level of coverage needed to achieve herd immunity.

Distribution has been a model of efficiency. Vaccinations happen seven days a week in most places and even late at night. While it is a civilian operation, the army is vaccinating its own soldiers and helping with tracking and tracing infection and some logistics. 

Israel’s government has left people guessing about the number of vaccines it has received, what it has paid for them or what supply is coming. We know that 2 million people have received a dose of the Pfizer vaccine and will receive their second dose starting this week. According to Netanyahu, an unspecified “millions more” are in the pipeline. Last week, Moderna, whose chief medical officer is an Israeli, sent an initial shipment of 100,000 doses. Israel is also working on a homemade vaccine that could be ready by the summer.

Israel, with a small population and abundant supplies of vaccines, is reaping the benefits of being a first mover. Its economy will be among the first to recover from the pandemic. That puts it in the company of a relatively small number of Asian countries which have come through the pandemic with little in the way of economic hardship.

There is no way the storming of the Capitol can be justified. Overwhelming an unsuspecting police cordon and disrespecting the nation’s seat of power is an affront no government is going to tolerate. That’s on top of what impact it has had on the vast majority of people who live their lives by a code of common decency.

By the same token, riots where private businesses are destroyed, police stations set light and people afraid for the integrity of their homes should also be condemned.

The problem with the polarization of political discourse in the USA is neither side is willing to sharply criticize the actions of their adherents. To do so would be political or busines suicide.

We are currently being treated to commentary fomenting fear that there will be a great deal of unrest at the upcoming Presidential inauguration. It’s a significant risk but it is far from the only form of intimidation.

My doorbell rang on Saturday night while we were sitting down to dinner. I thought it was an Amazon delivery so I went out to see what it was. Two BLM activists were waiting and informed me they were collecting donations. I told them we were in the middle of dinner and closed the door. They left chanting Black Lives Matter.

One way of looking at this encounter is that it was innocuous. Another is that they were indeed innocently collecting donations for their cause. Another is that they were canvasing the leafy suburb to identify who supports them and who doesn’t. For Mrs. Treacy’s part, she saw correlations with the Cultural Revolution.

The challenge is that the rioters during the summer threatened they would come into the neighborhoods. It never happened, but when fund raisers come knocking on the door it feels like they are after protection money. I think our days in Los Angeles are numbered. This is not the city we moved to seven years ago.

President-elect Biden says he wants to heal the country. That’s a tall order but regardless of its success it will mean throwing money at the problem. There is clear potential the USA is now moving towards formal adoption of MMT.

Technically, the polar vortex refers to a band of winds that encircle the Arctic and keep the cold locked far to the North. But with that temperature spike, known as sudden stratospheric warming, the band can buckle, allowing frigid air to head south. Gas traders used to call it the “polar pig.”

That could mean chills anywhere in the Northern Hemisphere, though this year it’s likely to end up in the U.S. according to Ryan Truchelut, president of Weather Tiger LCC. A wave of deep cold could give the Great Lakes and East Coast their first real blast of frigid winter weather, along with a storm pattern that delivers snow storms as well.

It will be a big shift for the U.S., where winter has been a bit lackluster so far. In New York, January readings have been 5.1 degrees above normal through Thursday, and Chicago has been 7.2 degrees warmer for the month.

Still, there’s no guarantee it will happen. While a sudden stratospheric warming usually leads to a burst of frigid weather, sometimes the clockwork of gears in the atmosphere doesn’t deliver.

“Many times in the past, the forecast for a cold weather event across the country resulted in a false alarm,” said Jim Rouiller, lead meteorologist with the Energy Weather Group LLC.

Weather is indeed fickle so no one can be sure that the expected wintry weather will in fact arrive. However, it is worth considering that the global economy is attempting to recover and delivery drivers are more a part of the fabric of the economy than ever before.

AN INEPT INSURRECTION FAILED, and there will be an orderly transition of power on Jan. 20; even Trump pledged as much early this morning. He probably won’t be ousted but his legacy will be forever stained, and his sycophants — Josh Hawley, Ted Cruz, etc. — will never recover.

THE TEMPERATURE WILL LOWER SOON: For the next few days, there will be speculation about removing Trump, largely out of fear over what he may do — especially geopolitically — in his final two weeks. And there will be questions about why the Capitol Hill police were so pathetically caught off guard yesterday. But a change is coming . . .

Stoking the mob is always tempting for populists on both sides of the spectrum.

That was abundantly clear in the mass protests, looting and destruction of public property over the summer. Those protests have since abated because the organisers achieved their goal of overthrowing the Trump administration.

The big question now is whether the mob seeking to overthrow the new Democrat controlled government will be chastened by yesterday’s events. My intuition tells me they represent a significant demographic and will form a significant portion of the new opposition, regardless of whether Donald Trump is banned on Twitter/Facebook.

Investors poured into financial assets that benefit from a stronger economy after Democrats looked set to take control of Congress, potentially unleashing a torrent of federal spending to revive growth.

Banks and energy producers led gains in the S&P 500 as the Russell 2000 Index of smaller companies climbed 3%. The Nasdaq 100 fell as traders sold out of high-flying stocks such as the Apple Inc. and Amazon.com Inc. The Dow Jones Industrial Average outperformed.

Democrats claimed one of the two Senate seats contested in Georgia and led in the other tight race. Two wins would give President-elect Joe Biden’s party control of Congress and smooth the path for some of his spending policies. That’s fueled bets that increased stimulus will boost the economy and spark inflation. The 10-year Treasury yield powered past 1% for the first time since March, and the dollar fluctuated after earlier weakening toward a six-year low.

“The growth-into-value rotation may be reinforced after the results of the Georgia Senate election amid the prospect of a higher fiscal stimulus bill and steeper yield curve, which would benefit banks and other non-tech companies,” David Bahnsen, chief investment officer of the Bahnsen Group in Newport Beach, California, wrote in a note to clients.

Control of the Senate will give the Democrats greater power to remake policy. It won’t all be plain sailing since such a slim majority will require total unanimity but it certainly means they will have an easier time passing spending measures. If debt financing and Modern Monetary Theory were likely before, they are doubly so today.

Driving the idea’s revival is the need for revenue. The pandemic has devastated government finances around the world, boosting spending by trillions of dollars, from India to Canada, while slashing tax collections.

The situation in the U.K. — which now faces its widest fiscal deficit since World War II — has brought the idea of taxing wealth back into the discussion. An independent commission last month called for a one-off levy to raise about 260 billion pounds ($354 billion) — more than a third of the U.K.’s tax receipts in the latest financial year. Raising that much money would require taxing individual wealth above 500,000 pounds at 1% annually for five years, affecting 8 million people.

“There’s been quite a lot of murmurings about reforming existing taxes on wealth, but everyone’s just effectively treated a wealth tax as being off the ‘serious’ agenda,” said
London School of Economics assistant law professor Andy Summers, one of the report’s authors. “Partly, that’s because barely anyone in the U.K. has studied it since the 1970s.”

Wealthy individuals represent a ripe target for taxation. So do wealthy companies with hundreds of billions sitting in cash. The time to look at trusts, real assets like gold or property, gifting to children, deferring income, options programs, internationally diversifying where wealth is held and potentially looking at alternative accommodations was yesterday.

Some said the deal was premature and could come at the cost of a reboot of the transatlantic alliance Biden has set as a priority in his multilateral approach to countering China.

George Magnus, a research associate at Oxford University’s China Centre, said the EU appeared to have conceded leverage for seemingly very little in return.

The agreement was unlikely to become a platform for the deepening of EU-China relations or even pave the way to a free-trade agreement, but it was a good move for China “without having to make major concessions commercially or any on labour standards and rights, which the EU is normally very robust about”, he said.

According to Gal Luft, co-director of Institute for the Analysis of Global Security, a think tank in Washington, the EU’s move was a deliberate attempt to take advantage of the power vacuum in the US.

“Concluding it in the interregnum period ensures that the outgoing administration will have no time to penalise Brussels while the new one will have no chance to weigh in,” he said.

“This shows that the EU, despite its misgivings about China’s behaviour and policies, wants to remain an independent player and is unwilling to be dragged into the US-China power struggle.” 

The last couple of months of 2020 ushered in three significant trade deals. That gives those of us who think globalisation is under threat something to contemplate. If we consider exactly what these agreements mean, it supports rather than negates the view we are entering a multipolar world.

5. The economy develops momentum on its own because of pent-up demand, and depressed hospitality and airline stocks become strong performers. Fiscal and monetary policy remain historically accommodative. Nominal economic growth for the full year exceeds 6% and the unemployment rate falls to 5%. We begin the longest economic cycle in history, surpassing the cycle that lasted from 2010 to 2020.

6. The Federal Reserve and the Treasury openly embrace Modern Monetary Theory as their accommodative policies continue. As long as growth exceeds the rate of inflation, deficits don’t seem to matter. Because inflation increases modestly, gold rallies and cryptocurrencies gain more respect during the year.

7. Even as energy company executives cut estimates for long-term growth, near-term opportunities are increasing. The return to “normal” increases both industrial activity and mobility, and the price of West Texas Intermediate oil rises to $65/bbl. Rig counts increase and energy high yield bonds rally soundly. Energy stocks are among the best performers in 2021.

8. The equity market broadens out. Stocks beyond health care and technology participate in the rise in prices. “Risk on” is not without risk and the market corrects almost 20% in the first half, but the S&P 500 trades at 4,500 later in the year. Cyclicals lead defensives, small caps beat large caps and the “K” shaped equity market recovery unwinds. Big cap tech is the source of liquidity, and the stocks are laggards for the year.

9. The surge in economic growth causes the 10-year Treasury yield to rise to 2%. The yield curve steepens, but a concomitant increase in inflation keeps real rates near zero. The Fed wants the strength in housing and autos to continue. As a result, it extends the duration of bond purchases in order to prevent higher rates at the long end of the curve from choking off credit to consumers and businesses.

If we contrast this list of potential surprises, I get the feeling they are less ambitious than in years past. I have heard the rumour from many quarters that President Trump is planning to set up his own TV station and there is plenty of speculation that the entire effort to overturn the election is to create a sound footing for a re-run at the title in 2024.

Rolls-Royce Holdings PLC will shelf its next-generation UltraFan engine program and halt investment until a new aircraft is launched as the industry grapples with low demand for new airplanes, the Financial Times reports.

--The British engineering giant will finish testing the new engine in 2022 but will then put the program "on ice," including postponing the search for an industrial partner for the new propulsion system, according to the FT.

--Rolls-Royce Chief Executive Warren East said he expects a significant delay until the new aircraft appear as the industry reels from the acute shock of the coronavirus pandemic, the FT reports.

The challenge for many industrial companies is that their growth prospects are dependent on economic growth and the ability of their customers to boost capital expenditure. At present the enthusiasm which greeted vaccine approvals is being tested by the evolution of new strains of the COVID-19 virus. That suggests capex decisions will likely be delayed until customers have visibility on what their post pandemic businesses will look like.

I hope you are enjoying the holidays and looking forward to a better year next year.

Here’s another one of Charles Gave's excellent articles-the oil price is on the move thus starting to bear out his fear of a 1970s-type repeat.

Secondly, regarding Ethereum, have you been able to quantify any price target and if so, what technical data/events have you chosen to use?

Thank you for this interesting report which repeats Gave’s earlier call for an inflationary boom with which I agree. However, I’m not sure we are in the same kind of bull market in oil that we had in the first decade of this century. The history of secular bull markets in oil points to rising prices lasting as long as it takes new sources of supply to reach market. That is followed by decades of ranging.

Some lidar suppliers gained Tuesday after Reuters reported that Apple Inc. plans to build a self-driving car for consumers and is tapping outside partners for elements of the system as it develops its own battery technology.

Apple is approaching companies for some parts, including lidar sensors that provide autonomous cars with a real-time, 3-D view of the world, the report said, citing unidentified people familiar with the matter.

Lidar supplier Luminar Technologies Inc. rose as much as 12% on Tuesday, while Velodyne Lidar Inc. surged 16%. Blank-check firms that are bringing more lidar players to the market also advanced: InterPrivate Acquisition Corp. climbed 17%, while Collective Growth Corp. jumped as much as 24%.

Apple has been working on driverless car technology since 2014, but pared back its ambitions from a full-fledged vehicle in 2017, Bloomberg News has reported. Since then, Apple has been working on the underlying autonomous system. The company has been deciding whether to attach this system to its own car, or existing vehicles, or to partner with an established carmaker, Bloomberg News reported earlier this month.

Apple enjoys an almost 40% gross margin on its iPhones and tablets. Porsche has about a 47% gross margin on the 911 and Ferrari has a more than 50% gross margin on its cars. Tesla’s is 16.5%. Toyota’s is 18% and Volkswagen’s is 19.5%. No mass market producer has been able to achieve margins on the scale technology companies are accustomed to.

Within the company, engineers are scrambling to assess the fallout and figure out workarounds to secure the equipment it needs, much like Huawei did two years prior, another person familiar with the matter said. At issue is the administration’s focus on drawing a line at 10-nanometer technology, banning the sale of equipment intended for use in more advanced processes. SMIC could conceivably repurpose 80% of older-generation gear to crank out more advanced chips, but that tactic won’t sustain production for the longer term and much depends on how far President-elect Joe Biden decides to take the rules, a third person close to the situation said, asking not to be identified discussing sensitive matters.

“The company has already got critical equipment and materials needed to continue production,” said Xiang Ligang, Beijing-based director-general of the Information Consumption Alliance. “In the past, China wasn’t too sensitive about the technological bottlenecks it has. But now, Beijing is fully aware of the potential damage and is determined to solve these issues.”

Chinese government-backed SMIC, a manufacturer of chips for global names from Qualcomm Inc. to Broadcom Inc., relies on U.S. gear for its longer-term technology road map. While its engineers may be able to sustain research and output in the short run, the latest sanctions basically freeze its capabilities while the industry advances. If a Biden White House takes it to the max, SMIC could be blocked from 7nm or more advanced technology while overseas rivals like Taiwan Semiconductor Manufacturing Co. dominate the market. The heightened scrutiny may also discourage clients leery of dealing with the uncertainty.

Self sufficiency in semi-conductors is a central policy objective for China. It is the basis on which the country seeks to compete with the USA in future. China may be able to do without Australian coal or wine but it has no hope of competing effectively on the geopolitical front without securing the supply line for technology’s basic ingredients.

The U.K. confronted threats of food insecurity and panicked shopping days before Christmas as European nations restricted trade and travel to guard against a resurgent coronavirus, offering Britain a preview of the border chaos to come in the absence of a Brexit deal.

Fearing a fast-spreading new strain of the virus that forced a strict lockdown across England, France on Sunday suspended travel from the U.K. for 48 hours and wants a stricter testing regime before lifting the blockade. Germany and Italy halted arriving flights from Britain with Spain and Portugal following suit. The crisis gave renewed urgency to negotiations for a trade deal with the European Union that remained at a critical stage after weekend talks.

Late Sunday, the Port of Dover stopped freight moved by truck into France while allowing unaccompanied cargo to keep moving. Traffic into the U.K. is unaffected, though truckers often run supplies in both directions and the latest outbreak in the heart of England may discourage them from entering the island.

The announcement over the weekend that one of the evolved versions of the original COVID--19 virus has travelled from South Africa to the UK has caused a panicky response from European governments. The new variant appears to be more infectious but no more lethal than the last. That suggests it will quickly become the dominant form of the virus circulating the global before long. Since the newer version is now already in Italy, closing borders with the UK is unlikely to have any effect on its ability to spread inside the EU.

Very interesting interview for those interested in our regional and international affairs Just ignore the first 3 minutes of the intro in the Malay language if you don't understand Bahasa.

Worth 93 minutes of you time. Download & watch at your leisure.

Kishore Mahbuhani, a Singaporean diplomat, Mahbuhani is brilliant.

Thank you for this video which I agree highlighted a number of interesting themes. The challenge for governments in Asian countries is how to balance the demands for loyalty coming from the world’s superpowers. That’s a particular challenge for those that have historically depended on US support for markets and military protection. They now see their primary growth engine in China while China’s Belt and Road program is the primary source of FDI for many potential projects. 

Andrea Enria, head of the ECB’s supervisory arm, said in a Bloomberg Television interview that there’s limited visibility on asset quality and that the bank will revisit its decision in September. He also called for moderation on banks’ variable pay.

The cap makes the ECB one of the more hawkish banking watchdogs in Europe. The Bank of England said last week that it will allow lenders to make payouts that don’t exceed 0.2% their risk-weighted assets, or 25% of cumulative quarterly profits over 2019 and 2020 after deducting shareholder distributions.

Europe’s banks are hamstrung by negative interest rates but they still charge fees for just about everything and don’t pay an interest rate. The most significant factor in their favour is the bad debts issue is slowly being eroded. That particularly true on the periphery. 

That strategy includes reducing restrictions on travel, investment and remittances for the island nation that are perceived to disproportionately hurt Americans and ordinary Cubans, said the people, who requested anonymity because the new administration is still coming together. Other measures that target Cuba for human rights abuses would remain in place, the people said.

The prospect of a détente between Washington and Havana rekindles memories of the thaw that Biden helped champion during the Obama administration, when the two nations restored diplomatic ties that had been broken for decades following Fidel Castro’s rise to power.

But the president-elect is returning to an even messier scene: the Cuban economy is suffering its worst crisis since the collapse of the Soviet Union amid fallout from Covid-19 and U.S. sanctions. At the same time, Cuban intelligence officers have helped prop up Nicolas Maduro in Venezuela, allowing his regime to consolidate its grip on power in defiance of demands for free and fair elections.

It looks increasingly likely that outside of the China question, the USA is likely to migrate back to many of the foreign policies championed during the Obama administration. There may also be a quid pro quo in the offing. Perhaps some assistance on the Venezuela question will be provided in return for easing sanctions.

This article today struck me as being a profound historical perspective on the UK and the EU. It reinforces my view (and yours I think) that the EMs are where the growth will be for the medium-long term. Whether we in the UK will be able to capitalise on this is our question.

Thank you for this emotional article which highlights the frustration many people feel with both the trajectory of European integration and the UK’s membership of the long-term federal project. As David used to say, “the markets are an international beauty contest where we get to be the judges.”

Generally speaking, an investor’s primary motivation for making a portfolio allocation to emerging market equities is the desire to tap into superior structural growth. However, equity market returns rarely correlate tightly to economic growth. There are many attractive secular growth companies in emerging markets—and they exist regardless of the economic growth conditions of their domestic economies. Investors wanting to tap into the powerful long-term benefits of superior structural growth trends can benefit from seeking out highly active strategies. In our experience, a strategy succeeds by continuously seeking out innovative companies with superior growth trajectories. A clear and consistent investment philosophy and repeatable investment process can help to ensure that a portfolio reflects bottom-up decisions that incorporate the superior growth available in EM equities.

The growth opportunity set is bigger than is generally thought. EM companies face challenges and problems different from those of their developed market counterparts, but their distinct circumstances often spur them to innovate and disrupt existing practices. EM companies are moving up the value chain, from export-oriented business models built on low-cost labor and cheap manufacturing to higher-value-added businesses based on technological and scientific innovation. Low recognition of these dynamics by investors and indexes creates an opportunity for growth-minded investors. Add to the mix companies that execute well to exploit a superior economic growth backdrop, and the opportunity set expands.

A link to the full report is posted in the Subscriber's Area.

China’s success in developing domestic champions has been truly impressive and they are now among the largest companies in the world by market cap and revenue. Success in expanding internationally has been limited in the technology sector to the Chinese diaspora because the global market tends to be much more competitive than the sheltered environment domestically.

A l;ink to the full report is posted in the Subscriber's Area. 

Europe and North America are more likely to receive ready access to vaccines developed by western companies in the short term. Meanwhile China is already exporting its vaccine candidate despite the apparent lack of rigour in testing. The first batches of Sinovac’s vaccine arrived in Indonesia today. It remains very likely that within six months there will be a significant oversupply of vaccines. I fully expect the rollout to go much faster than many people expect.

Regarding your comments on the mail about fake news: I would like to point out that your very sound and accurate analysis of the situation this year has helped me tremendously with my investments AND it has helped my mental health a lot. For both of these I am most grateful for your services. please do keep up the good work.

Thank you for your kind words. Mental health is a topic that is personal to all of us but tends to be sensationalised when it is made public. Personally, I have gone through multiple stages of surprise, hope and anger over the last year. That has been as much a reaction to the market as to the ineptitude of the official response in most countries. Many years in the financial business have conditioned me to equate despair in others as a buying opportunity. Despair in myself is usually a sign my position is too large and by opinion was incorrect.

On November 24th I posted a review of candidates I believe likely to prosper in the emerging post-pandemic market. It was well received by subscribers so I will post an update on my views on the first Friday of the month going forward. That way subscribers can have an expectation that long-term themes will be covered in a systematic manner and will have a point of reference to look back on.

Media hysteria about the 2nd or 3rd waves has not led to new highs in the number of deaths. The success of biotech companies in deploying vaccines means there is going to be a substantial recovery in the economic activity in 2021 and going forward.

The stay-at-home champions saw their sales growth surge in 2020. It will be impossible to sustain that growth rate in 2021. That’s particularly true for mega-caps. One-way bets on the sector are likely to work less well in the FAANGs going forward.

At its heart, the rotation is based on the idea that there’s a lot of money in the economy waiting to be spent on things besides video streaming and online shopping. The U.S. personal savings rate was 7.2% at the end of 2019. By April it had surged to 33.7%, and it was still 13.6% in October—almost double where it started the year. Deposits at U.S. commercial banks swelled to almost $16 trillion in November, up from $13.2 trillion at the end of last year. If consumers revert to their pre-pandemic ways, that could set off what Jim Paulsen, chief investment strategist for the Leuthold Group, has called “a growth bomb,” as companies gear up to replace lean inventories.

Fund managers with a value bias say there are still opportunities to take advantage of the change in investors’ tastes. Chris Davis of Davis Funds points to the banks Wells Fargo & Co. and Capital One Financial Corp., whose prices were hammered when lockdowns began in March and still haven’t fully recovered. Davis thinks investors have overlooked how banking regulations enacted after the global financial crisis have made these lenders better able to handle recessions. “When you look at their valuations, the amount of cash they produce, the capital ratios that they have, the reserves they’ve been able to put up—they really have this characteristic of resilience and durability, and yet are priced at this sort of shockingly low level,” he says.

Value has outperformed growth over the last month and yields have been rising. That’s not a coincidence. Value metrics need a discount rate against which to make comparisons while growth sectors tend to do best when interest rates are low.

A link to the full report is posted in the Subscriber's Area. 

If reflation is the new buzzword for governments, resilience is what companies are focusing on. Many were caught flat-footed by the pandemic and they will now actively transition to greater diversity of suppliers, holding more inventory and nearshoring manufacturing capacity.

The bloc has already made a land grab for London’s euro swaps clearing business, urging its banks to accelerate a shift to Europe. Deutsche Boerse AG’s Eurex Clearing has built up a 19% share of the business over recent years although it is dwarfed by London’s market share.

In recent weeks, Goldman and JPMorgan Chase & Co. have indicated that between them more than 300 staff will move to continental cities. Goldman is shifting as much as $60 billion in assets to Frankfurt, while JPMorgan is moving about $230 billion to the German city.

Consultancy EY said in a new report Monday that only 10% of big financial services firms are planning to establish or expand operations in the U.K. in the coming year, discouraged by the uncertainties of Brexit and the Covid-19 pandemic. That’s down from 45% in April.

The City of London is the UK’s cash cow and that is particularly true since North Sea oil went into decline. The City employed 360,000 people in banks and contributed £31 billion in taxes in the 2017. In the aftermath of Brexit, both those figures will be smaller but not catastrophically so.

I have been a subscriber for just over 30 years, and in that time, I can't recall many times when a clear and concise analysis of economic and political conditions was as important as it is today. You are doing a wonderful job at keeping the collective informed, allowing us to see a broader picture than our individual biases might otherwise give us. Thanks so much!

And

Congratulations our last subscriber commentary was exceptional. You have done wonders for my confidence and ability to help my clients. Keep up the good work. Best wishes

Thank you both for your kind words and it is enormously gratifying that subscribers find value in the Service. That’s particularly true for veterans who have been with us for decades. Given both the demand and positive response for a reasonably succinct list of thematic investments that cover the prevailing market outlook, I’ll review the list on at least a monthly basis. The first Friday of the month which would coincide with the Big Picture Long-Term audio/video makes sense to me.

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.”

It beggars’ belief that public sector wages can increase faster than the private sectors but such is the power of unions. It seems people often ignore the fact that all public wages are ultimately paid from tax revenues. Everything possible should be done to celebrate the ingenuity of the private sector in order to boost profitability and widen the tax base.

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.”

The USA is one of the most advanced countries in the world but investment in digitising the workings of the bureaucracy are absent. That’s a symptom of the polarisation in the political framework because neither side is willing to risk upsetting their base. The big question is how long that can go on given the size of deficits at both a federal and state level. 

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. 

Thanks for the well wishes and this article which may be of interest to the Collective. All is well with us since the streets were blessedly free of protestors following the election. I guess they got the result they wished for. Here is a section from the article:

He instructed Fed chairman Jerome Powell to return the unused portion of a $454bn (£342bn) account approved by Congress during the market meltdown in March. This seed money gave the Fed $4.5 trillion extra lending power under a policy of 10:1 leverage and had an electrifying effect on market confidence, helping avoid the errors made in 2008.

Krishna Guha from Evercore ISI said the Fed’s market stabilisation policy had been politicised. Congressman Bharat Ramamurti, a member of the House oversight committee on stimulus, called Mr Mnuchin’s move an unjustified and ideological decision by the treasury department.

The Fed retains its monetary policy powers and can purchase further US treasury bonds but that is a blunt tool at this juncture unless it is married to aggressive fiscal expansion, which the Republican Senate has vowed to block.

The Fed is concerned that more QE will chiefly inflate asset prices without doing much to help the real economy, exacerbating social inequality.

Congress stripped the Fed of its discretionary powers under Article 13 after the Lehman crisis. The Fed now needs permission from the treasury to go beyond its normal mandate. This was granted immediately during the panic in late March.

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. 

As the world comes out of the pandemic it is worth considering that if a brick and mortar store chain has survived this long, they might have something that is not easily replicable online. GameStop’s trade-in service is an example. So is the fact it is a place ignorant parents can go to ask about the game or apparatus their child has been badgering them to get. I’m increasingly of the opinion that some retail stores will persist because they offer to take cash which is impossible online. 

#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.

A link to the full report is posted in the Subscriber's Area.

With millions of people out of work it is easy to form a gloomy picture of economic potential. However, even at a US unemployment rate of 10%, there are still 90% of people with jobs. Moreover, many people who have held onto their employment have boosted savings this year.

When 90% of people come through a crisis in OK shape and a significant minority come out ahead, there is ample scope for a significant bounce back in activity. There is a great deal of pent up demand in the global economy and all that cash on the side lines is fuel for bull markets. The fact monetary and fiscal policy is aimed to improving the outcomes for the remaining 10% suggests loss credit and low rates are here to stay.

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.”

The current challenge for the emerging federal European superstate is how to net off the priorities of socially liberal but fiscally conservative creditors with socially conservative but fiscally liberally debtors.

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

A link to the full report is posted in the Subscriber's Area.

If we had to distill the priorities of governments next year there is only one word captures their intentions. Reflation. With millions of unemployed people, defaults only kept at bay by massive intervention and rising public discontent economic revival is the only possible solution. That’s true of every country. No one has been left unscathed by the pandemic. Whether the challenge has been domestic or from a loss of export markets, the solution is the same. Reflation.

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.

Facing down a water cannon is not something protestors will soon forget. It may yet prove to further fortify the resolve of the populist right wing movement to challenge the status quo.

The challenge for all governments as they measure their response to the pandemic is what freedoms to infringe. Everyone knows that temporary taxes have a tendency to become permanent. The legitimate fear is that if the government can close businesses by writ what is to stop them doing it again in future? With a clear precedent, the range of potential reasons for closing businesses can easily increase.

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.

Africa has, generally, come through the pandemic in much better shape than developed nations because of its large youthful population. That’s makes intuitive sense. COVID-19 affects the elderly more than any other demographic and Africa has more young people than anywhere. 

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.

The best-case scenario is all of the primary vaccine candidates prove both safe and effective. That would open up manufacturing capacity of as much as 7 billion doses by the end of 2021. That suggests there is real scope for massive overcapacity and that vaccine production will return to a low margin business.

CEP will connect about 30% of the world’s people and output and, in the right political context, will generate significant gains. According to computer simulations we recently published, RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030.

We also estimate that RCEP and CPTPP together will offset global losses from the U.S.-China trade war, although not for China and the United States. The new agreements will make the economies of North and Southeast Asia more efficient, linking their strengths in technology, manufacturing, agriculture, and natural resources.

The effects of RCEP are impressive even though the agreement is not as rigorous as the CPTPP. It incentivizes supply chains across the region but also caters to political sensitivities. Its intellectual property rules add little to what many members have in place, and the agreement says nothing at all about labor, the environment, or state-owned enterprises — all key chapters in the CPTPP. However, ASEAN-centered trade agreements tend to improve over time.

Southeast Asia will benefit significantly from RCEP ($19 billion annually by 2030) but less so than Northeast Asia because it already has free trade agreements with RCEP partners. But RCEP could improve access to Chinese Belt and Road Initiative (BRI) funds, enhancing gains from market access by strengthening transport, energy, and communications links. RCEP’s favorable rules of origin will also attract foreign investment."

The ratification of a free trade deal between China and much of Asia and Australasia is a significant bonus for its ambition of enmeshing as many countries as possible in dependency on its economy. China is already a major destination for exports from the wider region as well as a source of manufactured goods. This agreement will expand its role in the debt/credit markets too.

The encouraging signs are emerging after many European countries enacted new restrictions, including closing non-essential shops, bars and restaurants, in an effort to slow the pandemic. Ireland, one of the first to reimpose curbs, cut the number of new infections to about 360 in the latest 24 hours from more than 1,200 a day in mid-October.

Progress is mixed, with some countries still seeing big increases. Austria reported a record 9,262 new cases in the past 24 hours on Thursday. The government will meet on Friday to discuss whether further restrictions are needed after a second lockdown began earlier this month.

German Health Minister Jens Spahn said the new numbers in his country are encouraging but that it’s too early to speak of a new trend. The effect of the new measures can’t be evaluated yet, a spokeswoman said. Hospitals are still straining under the backlog of patients with existing infections.

Europe is going to be open by Christmas for exactly the same reason it was open for summer. Businesses can’t miss their peak season. It’s what makes or breaks a year in the normal course of events so one way or other figures will be massaged enough to ensure business open up in early December.

Thank you for bringing Rolls Royce to our attention recently. Thanks to you I was able to open a position which looks excellent now. Do you think the volatility in the share will continue for much longer? And what are your views about this share now? Thanks again very much.  

Thank you for your kind words and congratulations on taking opportunities in the market. The big question at present is about the trajectory or interest rates and bond yields. It will shape where risk appetite focuses. Investors will either favour recovery candidates on the basis that survivors will have more market share to expand into or they will continue to favour high growth/high leverage plays as they continue to disrupt incumbents.

However, the strong reading from the first large-scale trial to post efficacy results bodes well for other experimental vaccines, in particular one being developed by Moderna Inc. that uses similar technology. Its big trial could generate efficacy and safety results in weeks. If that study succeeds as well, there could be two vaccines available in the U.S. by around year-end.

Pfizer expects to get two months of safety follow-up data, a key metric required by U.S. regulators before an emergency authorization is granted, in the third week in November. If those findings raise no problems, Pfizer could apply for an authorization in the U.S. this month. A rolling review is in process in Europe.

So far, the trial’s data monitoring committee has identified no serious safety concerns, Pfizer and BioNTech said.

Leading the Race
The positive preliminary data mean the U.S. pharma giant and its German partner are on track to be first with a vaccine, after signing advance deals with governments worldwide for hundreds of thousands of doses. The companies have said they should be able to produce 1.3 billion doses -- enough to vaccinate 650 million people -- by the end of 2021. About 50 million doses are expected to be available in 2020.

“It shows that Covid-19 can be controlled,” BioNTech Chief Executive Officer Ugur Sahin said in an interview. “At the end of the day, it’s really a victory of science.”

This news is the foundation of the argument for removing social distancing guidelines by the end of the second quarter at the latest.

It no longer matters whether one agrees with wearing a mask, practising social distancing, vacating offices, opening or closing schools or the potential for overloading the healthcare system. The question of whether this was necessary or not is now irrelevant. The introduction of vaccines will render the argument mute.

Resolution requires concerted and consistent effort over a long period of time. It took 25 years to reform Finland’s primary education system before it topped the league in PISA scores. Singapore achieves superior health care outcomes at 25% of the cost of the US and 40% of Europe thanks to a system which gives consumers “skin in the game”.  It’s now thirty years in the making. Denmark’s commitment to wind power dates back to the 1970’s when the benefits were egregiously uneconomic. More than half of its energy is now from renewable sources. Ontario Teachers’ Pension Plan has evolved over thirty years since Lamoureux convinced Canada’s labor unions that the fund needs to attract and pay the best people from Goldman Sachs and Blackrock to work for them, rather than paying them fees.  Ontario Teachers’ has had an annualized total-return of 10% since reforms were made in 1990, and retirees’ pensions are fully funded with 100% inflation protection provided on all pensions.

It may be far-fetched to think that small, successful, experimental nations can fill this vacuum of leadership, but the world is begging for consistent leadership and a positive example, so an opportunity presents itself to step up.  

There is a good reason small countries tend to succeed in niche areas, and are often more successful than larger countries on specific metrics. They have to. Israel, South Korea or Switzerland have spent lifetimes grappling with the uncertainty of geopolitics. They understand the reality that if they don’t succeed on their own no one is going to help them.

Ireland is small rainy island on the tip of Europe, without a commitment to education and active courting of FDI, coupled with low corporate taxes and light regulation it would be a very dreary place indeed.

Sony executives have been deliberating over a price increase for some time, said people familiar with the discussions. A spokeswoman for Sony said the company is selling titles at launch for as little as $50 and the “biggest games" for $70. She said the higher price is “reflective of the growing development resources needed for these ambitious games.”

Game companies argue prices haven’t kept pace with the cost of other media like a movie ticket, Netflix or cable television, said Yoshio Osaki, the head of IDG Consulting Inc., which works with most major publishers. Since 2005, the cost to develop a game has tripled or quadrupled, he said.

“Not all publishers will launch next-gen games at $70,” Osaki wrote in an email. “However, we do anticipate that a growing percentage of games will launch at $70, but not all at once and not uniformly across every publisher or every game franchise.”

Capcom Co., the Japanese publisher of Resident Evil and Street Fighter, won’t release software for the new systems until next year. But like other companies, Capcom said it’s taking a “title-by-title” approach. “We believe game software’s price should be determined by how much money consumers are willing to pay for the quality, not by how much money we spend to make that game,” said Kenkichi Nomura, the chief financial officer.

This discussion of what the cost of computer game should be is missing a significant evolution of the market which has been going on for the last decade. Freemium is the biggest trend in the market where players have access to the game for free and pay of add-ons to speed up their progress or enhance the look of their online profile. 

Phase 2: things have to get worse before they get better, and this means there are aggressive policies to come (more so if Biden wins). This bodes well for a recovery that should further support a rotation towards cyclical themes as we enter 2021. This should favour equities, which could have more upside potential vs HY credit, which could be less appealing on a risk/return basis at current valuations. A rotation from super-high-growth stocks into more cyclical and quality value areas will likely materialise. Commodity-related trades could also benefit from this cyclical rebound. The availability of a vaccine would be part of this recovery: markets are pricing in availability in mid-2021 and then an economic reacceleration. Any delay could generate volatility, putting the virus cycle once again at the top of market concerns. Investors should look at opportunities from rotation, while also being mindful of possibly higher volatility. Bonds will be the key sentinels for the next phase. The market will likely start pricing in higher inflation and reflation, leading to the next sequence.

Phase 3: from improving to sustained growth. The next part of the sequence embeds a new round of policy mix and a slow exit from the extreme accommodation seen so far. The measures introduced to fight the pandemic will be very difficult to withdraw, and governments and CBs will probably have to do more. Fiscal and monetary policies will be even more intertwined, making the possibility of further debt monetisation to finance the recovery a likely scenario. Some EM with weak CB credibility could see inflation rise faster amid their recoveries which could trigger higher commodity prices. This might overheat the economy, ultimately leading to some inflation. This could de-anchor the system, which is based on the assumption of low rates forever, and real rates could become more volatile. This phase will be challenging for risk assets and could favour further rotation into equity value, commodities and real assets.

There is really one question to occupy the minds of investors. What is the Federal Reserve going to do about rising long bond yields? All other investment themes flow from the answer to that question.

“It is extremely difficult to project growth 15 years out and, although we view growth of 5%-6% over 2021-2025 as likely, growth above 5% over 2026-2035 appears quite challenging,” Nomura Holdings Inc. economists, led by Ting Lu, wrote in a note.

To overcome some of those challenges, the Communist Party is promising to build the nation into a technological powerhouse and focus on quality growth over speed. Key to that objective is developing a robust domestic market and becoming self-reliant in technology -- especially in chips, the building blocks for innovations from artificial intelligence to fifth-generation networking and autonomous vehicles.

The greater the size of the economy, more difficult it is to grow quickly. That is why standards of governance are so important. If graft and political ideology gets in the way of innovation and the pass-through effect to a greater wealth effect the headwinds to growth only growth stronger. China has demonstrated repeatedly that subservience to the party comes ahead of every other factor. That was particularly clear this week with the smack down of ANT Financial’s IPO.

The Brazilian real’s outperformance hints at investors’ pragmatic stance toward the currency, which may have further room to appreciate despite potential diplomatic frictions with a Biden White House.

BRL rose 3.2% over the last two sessions, by far the best performance among all major currencies. That may sound strange given Joe Biden’s comments on potential sanctions on the country due to deforestation and Brazilian President Jair Bolsonaro’s clear alliance with Trump, but traders are working with the information they have at hand now instead of making assumptions about what will happen in the future.

A Biden presidency improves chances of stimulus in the near future even with a GOP-controlled Senate. That has prompted bets that the dollar is prone to weaken and the currency that seems to have most room for a quick swing is the Brazilian real. The currency is the most depreciated major currency in the world this year, even after this week’s gains. Brazil faces fiscal pressure with debt-to-GDP ratio expected to rise beyond 100% this year, but the fundamental issues are local and not external. With more dollars available, the temptation to bet on the recovery of a country that has shown robust activity data is just too high.

Investors will keep a close eye on Brazil’s budget challenges and the government’s maneuvers to finance itself. Concern about Brazil’s relationship with U.S. under a potential Biden government may grow in relevance, but only in the middle of next year.

The determination of governments everywhere to spur reflation in 2021 is probably a more significant factor than geopolitics for most commodity producers. Australia’s brewing dispute with China is an obvious counter example, but even then, China still needs what Australia exports. Global infrastructure development is likely to play a vital role in the plans of most countries to boost employment and stimulate growth. That’s a major commodity demand growth trend which is taking place against a background of meagre investments in additional supply.  

The measures aim to counter the impact of a resurgent pandemic that has forced the government to order pubs, restaurants and non-essential shops to shut. With the outlook already clouded by the U.K.’s looming exit from the European Union’s single market -- potentially with no trade deal -- the nation risks a painful spike in joblessness.

Sunak told Parliament that the double injection of stimulus shows “all economic and monetary institutions are playing their part.” Governor Andrew Bailey said in a press conference that it is “important that we take prompt, strong and coordinated action.”

Spending on job support from November to March, along with an increase in help for self-employed workers, could cost around 25 billion pounds, Bloomberg Economics estimates.

If the government mandates a lockdown then some remedial action is necessary to blunt the economic hit to consumers and businesses. If the lockdowns and social media are abandoned then everything possible to reflate the economy will need to be done. Therefore, whichever way we look at it, the outlook is for more stimulus. The primary catalyst provided by the pandemic is to promote coordination between the monetary and fiscal authorities. It has ushered in modern monetary theory. 

As expected, the plenum declared that China had met the critical political goal of becoming a “moderately prosperous society” in 2020. By the end of the year, China’s GDP is expected to reach nearly 100 trillion yuan (RMB)—equivalent to $14.3 trillion—a figure higher than the plan’s forecast of RMB 92.7 trillion, which makes China’s economy in nominal terms about 66.7 percent the size of that of the United States in 2019 ($21.4 trillion), up from 40.6 percent the size of the United States in 2010. China reportedly lifted 55.75 million people out of poverty and created 60 million jobs in urban areas over the past half-decade. By the end of 2020, there will be basic medical insurance coverage for 1.3 billion and basic pension support for nearly 1 billion citizens.

Looking ahead, the plenum emphasized that the 14th Five-Year Plan will build on the 13th Five-Year Plan’s principles of innovation, regional coordination, green development, international openness, and social equity. That said, there was a distinct emphasis on strengthening the domestic economy. There was no mention of a growth rate target; instead, the country will focus on improving quality and raising productivity. The plan will highlight China’s need to gain technological independence; become a powerhouse in manufacturing, cyber, and the digital economy; and raise China’s international competitiveness. At the same time, China will need to expand domestic consumption as a share of the economy, which will be dependent on raising wages, building a more complete social safety net, and expanding economic opportunities in rural China.

The middle-income trap has been escaped by only a handful of countries. South Korea, Singapore and Taiwan spring to mind. They have mustered the wherewithal to evolve their governance structure to become more efficient and successfully transitioned to high-end manufacturing and services. Relatively small populations relative to the scale of their exports has been a significant aid in achieving those goals.

Last question: The election ends on Tuesday. National polling has consistently shown a substantial lead for Biden. What is your message to people who think that this thing is done?

Cahaly: I don’t think it’s done. Some of these national polls are not even taking into consideration the fact that Republicans have closed the gap with voter registrations. I don’t think they’re taking into account the number of low-propensity voters who are voting and who will vote on Election Day. I don’t think they’re measuring people’s genuine opinions. And I think [pollsters] are just not going to see it coming.

There’s a lot of hidden Trump votes out there. Will Biden win the popular vote? Probably. I’m not even debating that. But I think Trump is likely to have an Electoral College victory.

Kapteyn: I will be really surprised, given our own numbers, if there isn’t a very sizable gap between Biden and Trump in the popular vote—in favor of Biden. But in the states? I don’t know.

Cahaly: I like your skepticism.

There are going to be millions of people who vote for the first time in this election. That’s not just about Gen Z but it is also because people have more time. There are millions of people out of work and it’s an excuse to get out of the house or to spend half an hour filling in a form before mailing it. Turnout is likely to be the highest in decades. California alone could ensure Joe Biden wins a popular vote majority of 3 or 4 percent. Yet, the electoral college is likely to be a lot closer.

It seems to me that the above are going to be seen as super spreading events as we see day after day thousands of his followers in close proximity not wearing masks, blindly following his mantra that the disease is turning the corner. Supporting my argument is we know an important property of the virus is that it survives in the atmosphere much better at lower temperatures thus aiding the infectivity.

Thank you for this email which may be of interest to other subscribers. I found the point you made months ago about the tendency of stressed individuals to be more susceptible to infection to be particularly insightful.

General Electric shares jumped as much as 10% on Wednesday after the company’s third-quarter results
topped projections, earning the company plaudits from even the most bearish Wall Street analysts.

* Gordon Haskett analyst John Inch (hold) said GE’s EPS beat follows the pattern of mostly all other industrial companies that have beat bottom-line forecasts this earnings season

** Said overall, stronger healthcare and better free cash flow, despite still tough aviation business, “are likely to reinforce the messaging that GE has fundamentally bottomed – although the company will likely continue to face years ahead of difficult climb-back,” while Covid resurgence could arrest aviation fundamentals and future improvement in healthcare business

* JPMorgan analyst Stephen Tusa (neutral) said the across-the-board nature of the beat “is what it is, positive”

** The 4Q guide for free cash flow of over $2.5 billion suggests cash will be well ahead of JPM’s below-consensus expectations, and a “headline like that is tough to argue with”

* RBC analyst Deane Dray (outperform) said GE is still battling through a multiyear turnaround, worsened by the Covid-pandemic, but “there were encouraging signs” in the company’s EPS beat

** As is typical with a GE earnings, there are a number of moving parts involving charges/reserves, the analyst noted

** Said the most notable of those is the $100 million reserve taken for a potential settlement with the SEC for legacy accounting issues; however, since these issues date back to two CEOs ago, Dray expects investors would view it as a positive to see this issue resolved via a settlement

* GE 14 buys, 8 holds, 1 sell; avg PT $8.07: Bloomberg data

* NOTE: Earlier, GE Jumps on Surprise Profit as Culp Sees Faster Turnaround

The global economy is in a state of flux because no one can have an accurate reading what the future patterns of activity will be following the pandemic. The travel/hospitality sector obviously has a place in the economy but at what scale? The stay-at-home champions have seen a step change in demand growth for their products but how sustainable is that growth trajectory? For industrials is the economy going to bounce back on infrastructure development or be mired in political infighting?

Bitcoin surged to the highest level since July 2019 after PayPal Holdings Inc. announced it will allow
customers to use cryptocurrencies.

The largest digital coin increased as much as 4.9% to $12,488 Wednesday, surpassing the previous high for the year of $12,473 set in August. Gains among so-called alt coins were even larger, with Litecoin jumping more than 11% and Bitcoin Cash surging 8%.

PayPal customers can use select cryptocurrencies including Bitcoin, Ether, Bitcoin Cash and Litecoin on the platform. Mike Novogratz, who runs Galaxy Investment Partners, on Twitter called it “the biggest news of the year in crypto,” adding that banks will embark on a race to service digital currencies.

“We have crossed the rubicon,” he said. The news sparked an exuberant response from crypto fans who pointed to a string of recent announcements that suggest wider acceptance by old-school financial mainstays. Two public companies -- Square Inc. and MicroStrategy Inc. -- said recently that they invested in Bitcoin. And Fidelity Investments announced in August that it’s launching its first Bitcoin fund, adding its establishment name and star power to the often-maligned asset class.

The most recent bitcoin halvening was completed in May. That means the reward for solving the algorithm halved which doubled the difficulty of mining the next one. Since the genesis of the cryptocurrency, halvenings have resulted in investors appreciating the limited supply argument and the increasing difficult of creating new bitcoins as time progresses.

Airbnb is also a better value than hotels, offering more space but with less Covid (no check-in, elevators, or common areas) at a lower cost. A crisis is a terrible thing to waste, and Covid afforded the CEO the cloud cover to cut costs and refocus on the core business. In May Airbnb laid off a quarter of its staff (1,900 employees). CEO Chesky managed to pull a Bezos and was seen as a hero for his empathetic approach to layoffs (generous severance, extended healthcare, and a website of Airbnb employees who were laid off to help them find new leads). Firing people, sending out private pics — tomato/tomahto. Chesky and co-founders relinquished their salaries, cut pay in half for executives, and slashed nearly $1 billion in marketing expenses. The firm is in fighting shape.

The reduced cost structure and market recovery mean the path to profitability has become bigger, better lit, and shorter. There are rumors the firm will accelerate into/through profitability in 2021. The story here won’t be one of distant, but burgeoning, profits.

The story stock of 2020, where the narrative rode shotgun as the numbers sat quietly in the backseat, was Tesla. Airbnb will not electrify the world, but it will host it and reshape the resources required to let people tap into a basic instinct: to explore with others. What Airbnb lacks in story (unlikely Mr. Chesky can land two Brooklyn studio apartments on dual barges concurrently), it makes up in performance. There is no better vision than performance.

I had the pleasure of virtually attending a talk by Scott Galloway last week. He’s an engaging speaker and his topic at the time was how personal priorities shape purchasing decisions. He had a lot to say about equality of opportunity in college admissions. His main point was admissions, as they are currently structured in the USA, are tantamount to a caste system. I imagine his classes at NYU are well-attended.

The Emerging Market (EM) share of world output in the last 20 years doubled from 19% to 38% with the EM world growing at about double the rate of the Developed world (DM). This kept the total world growth at a 3-3.5% range over the last decade despite every region in the world growing a little slower than in the previous decade.

The implications of the swings in the global deflator and the FX on businesses and global incomes was much larger than most imagined which is visible in Fig 1 above. It breaks down the nominal world output and its components showing that the world in real terms grew at a pretty even rate of 3-3.5% through most of the last twenty years, with the swing in the ‘Deflator+FX component’ creating the big booms or bust feel in the world.

We are entering another such ‘Supercycle’ which was born about a quarter ago. Our definition of a supercycle is nominal World Output growing at 8-10% for a few years lifting most boats globally. Our view on the components of this global Supercycle are essentially building in a few key assumptions –

1. The World growth in real terms continues in the 3% +/- 1% range after normalizing to pre Covid levels in real terms by 2022. This is line with the IMF and many other estimates.

2. We expect the Global deflator to stay elevated in the 2-4% range for the next few years driven by stimulative fiscal and monetary policy by most large world economies. This would be aided by a weaker US$ and concurrent to it.

3. The US$ weakens 3-4% per annum for the next few years with rising deficits, with the Chinese Yuan doing the heavy lifting on the other side. The Yuan weakness in the previous few years had prevented this from playing out earlier. This paves the way for a strong Asian and EM FX basket which together account for about half of the world output. This is in a way similar to what happened in 2003-2005.

A link to the full note is posted in the Subscriber's Area.

Thanks for this interesting missive which may be of value to subscribers. Here is an additional note from the sender:

The AHA has estimated the pandemic will cost U.S. hospitals more than $323 billion through the end of this year. U.S. hospital revenue totaled about $1.1 trillion in 2018, according to the most recent AHA data available. The industry group is asking Congress for an additional $100 billion and full forgiveness of loans made under Medicare’s accelerated payment program, among other requests for relief.

As many as half of hospitals could be losing money by year end, Wesolowski said, citing a report it released in July from Kaufman, Hall and Associates. That’s up from about a third that were operating at a loss ahead of the pandemic.

More than three dozen hospitals have already entered bankruptcy this year, adding to a similar number last year, according to data compiled by Bloomberg. More than a dozen in rural areas have also shut their doors, according to the Cecil G. Sheps Center for Health Services Research at the University of North Carolina. The AHA put the total U.S. hospital count at 6,146 in its most recent report, a decrease of 64 from the previous year.

The financial pain has flowed through to Wall Street. Many of the hospitals that entered bankruptcy this year were part of Quorum Health Corp.’s Chapter 11 filing in April. Quorum’s 24 hospitals and other facilities struggled under the demands of treating coronavirus patients. In late June, a judge approved the company’s exit plan, which wiped out shareholders and handed the chain to creditors.

Hospitals are on the frontline of dealing with the pandemic but also suffer from the less remarked upon consequences of damaging consumer confidence. People have simply stopped going to the doctor.

“I can’t say as we stand here that we’ll necessarily get a deal -- we have prospects of a deal,” Barnier told reporters after meeting with EU leaders, adding that, as far as he’s concerned, talks will continue in London next week and Brussels the week after. “We shall remain available until the last possible day -- the negotiations aren’t over.”

While the U.K. thinks it has gone as far as it can, and wants the EU to compromise, leaders from the bloc insisted that the onus is on the British government. It wants the U.K. to make concessions on state aid, limiting the subsidies government can hand out to businesses, before it contemplates its own compromises on fishing.

European officials brushed off Frost’s complaints and insisted they won’t persuade the bloc to shift its stance, and several voiced irritation, asking not to be identified because of the sensitivity of the negotiations. Two said they judged the comments were aimed at Frost’s domestic audience and two others said they might serve to harden the EU’s position.

It might be nice to think that the Brexit story is about the triumph of freedom and national sovereignty over an overbearing increasingly federalist bureaucracy. However, the exit negotiations are much more about money and what competition will look like afterwards. The big question is not about fishing rights, financial services or customs borders. Instead, the primary sticking points are what modes of competition the UK is willing to give up in order to retain unfettered access to the EU’s market.