Central Banks caught between Einstein’s “Theory of Insanity” and Newton’s “Third Law of Motion”

Local market started positive but faded back to flat on negative US lead. US market seems to keep getting knocked by negative macro day after day but late afternoon pump is getting it back to flat to slight negative each day. Not sure how long that will last as Fed presidents keep talking about letting reflation run hot. The new White House / US Fed paradigm are not worried about the market like before. Our market was held up by a couple of banks (ANZ and WBC) and CSL today from falling over. Banks are all doing the same thing…solid result on yield recovery trade, government handout boosted economy and bad debt provision fudging. Only problem is the underlying economy is weak and the cracks will open up as the handouts fade. As we have said a number of times, RBA cut rates below 1% pre pandemic and is on a path to endless QE. Sadly, RBA has already lost control of AUDUSD and soon the asset bubbles. US is running hard towards stagflation to avoid a double dip recession and USD is the collateral damage. USD likely to pop on short term risk off trade but will be in down trend over the medium term as continues stimulus outlook will continue to debase it. If you don’t believe that…may be you heard of Bitcoin! Cryptocurrencies only exist due to failures of Governments and Central Banks to manage their fiscal and monetary policies. Central Banks have been given a raw deal as most governments in the West have been bad to shocking in policy reform, growth agenda, debt blowout and blatant rorting. At some point in the last 4-5 years, Central Banks should have stopped proving the Albert Einstein’s “Theory of Insanity”… “repeating the same process and expecting a different outcome”. Currency War by plan or by default is still currency war. RBA has lost the currency war and now holding onto the strategy of hope that US doesn’t blow up the asset bubbles. RBA has been pumping assets like a politician on funding rorts. Trickle up economics has left the economy open to global risks. What could go wrong? Well, RBA is stealing from retirees and savers to bail out zombie businesses despite knowing that it will make very little difference on the upside while leaving massive savings hole in the long term for the economy. We are burning future growth to bailout current failures. See how well that worked out for Japan and EU! Nothing is free as it is always a zero sum game. Newton’s “Third Law of Motion”…”every action has an equal and opposite reaction”!

Just for context…we had the job data today and seasonally adjusted we created approx. 60k full time jobs and lost 30k part time jobs. That’s a net gain of 30k jobs. When you adjust for population, that is like US creating over 400k jobs. If this is true, then we should be seeing wages growth pressures in areas and JobKeeper/JobSeeker is not needed. RBA has flagged that recovery will take years and wages growth is not coming for years. They agree this data makes no sense. Then there is the matter of nearly 6% drop in working hours from last Jan to this Jan as well as a drop of 86m hours work over the month. In summary we created phenomenal amount of jobs but worked less and paid less in real terms. Logic suggests that we are classifying a lot of people that barely work as full time employees while we are losing a lot of hours of work/pay on aggregate basis. The great thing about data is that the same set of data can be sliced and diced to support both sides of an argument but the economy does not run on alternative facts. Australia can’t seem to grow past the commodity/property bubbles. Inflation is real and asset bubbles are in trouble while we are fighting with the main global commodity customer. Australia will be forced to grow up in the next decade as the current leadership in the layers of governments and central bank are unwilling to make the change.

Comments on US market last close > US market was mainly negative after recovering from very negative start on reflation worries as bond yield rise and retail sales beat expectations. US Fed presidents are all talking to let it run. Cathy Wood is on CNBC defending growth stocks and admits it will get hit with rising bond yields. Bonds and USD higher. Metals lower and Oil remains supported on US weather. RUSSELL led the falls and NASDAQ next. Energy was the best sector and Tech was the weakest. We are starting to see the cracks appear in market optimism on stimulus as reflation bites.

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...its going to get bumpy!!!

End of day market stats are on the attached link/pdf.