“Just when you thought it was safe to get back in the water… another time..”
How Great is 2021 going to be?
Strategizing about markets is a really, really fun way to start the day. I wake up with something to do and think about every day! I often get asked about when do I find time to write the Morning Porridge. Does it take all my time? Nope. I down tools on it by 9.00 am most days. I really do have a day-job – financing private debt and equity deals. Yesterday was spent working out how to restructure a UK aerospace and satellite launch project, and then how to present an infrastructure deal in the most effective way to potential investors.
Occasionally something big happens in markets that sets the Morning Porridge’s tone for the coming day, but most days it’s freshly produced from personally sourced global ingredients, or from thoughts leaping off the pages I scour as I wake up. Some days I have a very clear idea what I’m going to write about, and others, I wake up wondering what is there to say that hasn’t already been written about where the markets are going next.
Occasionally a theme or an idea will germinate or fester slowly in my head and it takes me a while to think it through and develop it. I’m having one of these days… I’m trying to think through the Consequences of the Year of the Pandemic. My thinking is its nowhere near complete.. and I’m beginning to scare myself..
The coronavirus has been the defining theme of 2020 – but what did it actually reveal in terms of markets? Its set the narrative. Everything else reacted to it. We saw enormous shifts in terms of policy and business strategies. All these shifts have consequences on future demand, supply, investment and growth, but also on expectations. Markets think its over so they are enthusiastic. Get back in the box…
The virus thread is a loop that has now turned positive as the vaccines are rolled out– each day we get a news reinforcing the uptrend, building on a growing sense that markets will be fundamentally stronger in 2021. The investment banks are saying it’s going to be a bumper year for growth across South East Asia and swifter than expected recovery in Europe and the USA.
If you squint your eye’s hard enough it may even look like a V-Shaped recovery when all is done. Everyone is hi-fiving themselves about how resilient the global economy has proven to be. Even damaged sectors – like cruises and air travel will take off next year on the back of repressed consumer demand being freed up.
As I wrote yesterday, I’m not convinced markets really understand how all the forces underlying prices have come together. Most importantly, the way markets have operated through the crisis has largely been set by the central bank polices put in place post 2008 – QE and Ultralow rates. These have been the critical aspects of how markets have performed this year – they have risen as result of ongoing distortion!
That’s not what the rising market sees. It sees only upside because the global economy will recover from the swift, sharp shock of 2020. It’s far too simple an analysis. The global economy just went through a really dangerous and stressful moment – worse in many ways that the Global Financial Crisis of 2008. I reckon there will be years of consequences to come – the equivalent of PTSD: post-traumatic stress disorder.
There is a is a difference from a pretty line on a chart showing growth and global recovery, and reality on the street. Consider how we really put the global economies back on track, and address the global consequences of the pandemic, such as: how to balance the devastating losses suffered across certain sectors versus other parts of the economy emerging relatively unscathed.
Or what about the risk of policy mistakes? Governments are talking about the need to balance the books and raise taxes to pay for a year of ramped up stimulus and support packages – including socialising wages. What are the dangers governments plunge us back into austerity and recession, or central banks trigger market collapse by talking about normalising rates?
What strikes me is how themes seem to be repeating and entrenching themselves through these final days of the 2020 markets. It all feels a bit fractal – and I wonder if the computer simulation we exist in might be some great Mandelbrot set where the same themes and patterns are constantly repeating.
Probably not. In terms of markets, I’m coming to the conclusion 2020 might prove to be the year everything changes – and the scale of crisis becomes even more apparent, lifting scales from our eyes. We just don’t know it yet.
I’ve written before about the Global Financial Crisis 2007-2031. I’m more and more convinced we are still nowhere near the end of that still festering economic and market dislocation.
I’m not just thinking about how markets have moved in apparent defiance of the economic reality, or how stocks have become hyper-inflated by their relative value to artificially low interest rates and easy money, or how bonds now represent absurd levels of risk for minimal returns.
I’m not just thinking about how zero returns have generated and enhanced bubble formations.
I’m not just thinking about what rising debt levels at sovereign, corporate and individual levels means in terms of future austerity threats.
I’m not just thinking about rising inequity and inequality – how government stimulus has largely resulted in the rich getting richer – and what that does politically.
What I’m trying to figure out is whether the Pandemic might just prove to be a catalyst to a major rethink. These issues I’ve listed above are not going to be solved overnight by the end of the virus threat. They might get bigger!
All you need to do is read the comments on places like Zerohedge to find out exactly how the 8 foot Lizardmen who control the global economy on behalf of the Rothchilds et al are planning a “global financial reset”. The lunatic fringe do love their conspiracy theories. Sadly, their fantasies gain enormous traction by the way social media and fake news targeting reinforces what folks want to believe.
The reality is the virus was a shock. Its disrupted everything. But the most dangerous stage of the pandemic for markets is as we come out of it. That’s when all the negative effects the Pandemic has created, plus the ongoing consequences of the government and central polices that followed the last Global Financial Crisis are going to combine.
I suspect, the only way to address the consequences of the government created financial mess we’ll find ourselves in.. is probably yet more government and ongoing central bank intervention and direction in terms of maintaining stability and managing a way out of the distortion. That’s a recipe for trouble. The friction between more of less government is getting to civil war levels in some nations.
The Big Big question is whether governments are up to the challenge of unravelling the financial mess we now find ourselves in. I seriously question it…