Money printing fairy tales are not delivering jobs but expect more to come

Local market delivered a slightly positive day on low turnover volatile day. The market started positive on global investor buying on positive consumer sentiment data and weak China property data before selling pressure into the close. Aussie consumers remain positive on the view that economic mess will lead to prolonged government handouts. China housing data was weaker than expected but commentary from leadership was about more targeted stimulus to keep consumer spending as the main driver of economic recovery cycle. US election uncertainties will be sorted out in the next few days as individual states confirm the college votes for the presidential election. There still seems to be no drive to move forward on stimulus deal while Brexit mess continues to weigh on UK. Vaccine rollout to high risk groups still leaves the economy to deal with restrictions and full hospitals for months to come. Expect central banks to continue to debase currency and add more balance sheet expansion to kick the recession can down the road. Access to cheaper debt is not delivering the economic boost while making asset bubbles even bigger. Real unemployment in most western economies are in double digit and that will drive the consumer sentiment in the medium term. If you believe in sustained recovery, then we will get reflation. If you believe fading recovery and more money printing, then we will get reflation. If you believe fading recovery and no money printing, then market will pullback without reflation. If you believe reflation, then market multiples will have to come down and hence a pullback. Bond markets are telling you that the central banks are going to take the path of least resistant and print more money despite that helping markets and not the economy. Reflation is going to make it very hard in the future for central banks to spin a failed fairytale about trickle down economics.

Global Negative Yield Debt hit new all time highs as Central Banks run out of ideas to keep asset bubble up and recession risks down. How much currency debasement and balance sheet expansion are Central Banks willing to burn to slow the economic cycle? Market is betting that they will do more but it may still be not enough. Do you have enough Gold exposure? May be not!!!

US market was mainly flat on Friday night with lack of news on stimulus, election result and worsening pandemic. DOW was slightly positive while rest slightly negative with Russell was the worst. Risk off day...bonds, USD and Gold were higher while rest were lower. European markets were down more on Brexit mess on top of existing uncertainties. EU potential vaccine candidate had issues. Added QE didn’t buy much safety for markets. Energy and Banks were the worst sectors in the US. Reflation trade with rising yields, weaker currency and weaker economy is playing in the US.

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

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