More turkeys to get pardoned but market needs stimulus now
Local market delivered another negative day on pandemic damage to the economy while US market was shut for Thanksgiving holiday. Global investors turned negative on currency/value trade in recent days after being mainly positive for nearly 4 weeks. All major sectors were in the red with a couple of positive sub sectors in Property and Gold. USD and Bonds were moving higher on risk off but that will reverse over long time. US Fed will be forced to expand the balance sheet to keep yields under control. Balance sheet expansion will debase USD and drive Gold and other commodities higher in the long term. The problem with this strategy is that debasing USD will raise inflation. Technically speaking, US Fed is going to create inflation while trying to water down bond market expectations of reflation. This contradiction is why Central Banks get it wrong and blow up asset bubbles!!!
Growth to value rotation is structural and it has started. It will play out over the next year or two with reflation trade. US Fed is going to debase USD to buy time and allow deleveraging but US corporates do not have a strong economic growth to execute that change. The result is likely to be higher unemployment and rising bankruptcies. Trump administration looks like cleaning house to prepare for the inevitable exit. Pardons are expected to be delivered like burgers at McDonalds to protect the insiders. There are more turkeys that needs to be pardoned to remove them from being the weakest link in future legal issues for the President and his family!!!
Markets are running on the hope that economy and corporate earnings will return to pre pandemic level. US Fed and RBA rate cut cycles were collapsing in 2019 and that is pre pandemic. Global economy was falling into recession in 2019 and that is our best case scenario in the next year. It is time to bet against the historical high market multiple when the best case scenario is heading to recession or substantial weak growth for years!!!
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!
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Over 25 years’ experience in the finance/tech industry. Mathan has worked extensively in all parts of the finance sector (i.e. County NatWest, Citi, LIM, Southern Cross, Bell Potter, Baillieu Holst and Blue Ocean Equities). Currently Founder and...