Socialism is the inconvenient truth while Capitalism is the reassuring lie

Mathan Somasundaram

Deep Data Analytics

Local market had another positive day on a low turnover with global investors pushing the market higher chasing rising AUDUSD. Local fund managers are still missing in action and they are likely to take Monday off to finish the holidays with an extra long weekend. The main show tonight is the US and their inauguration. Trump camp has managed to everything into a reality TV moment…even the decline of US capitalism and democracy. As much as I would hope nothing dramatic happens tonight, it is US and it is the end of the Trump presidency…anything could happen. It will be interesting to see how the Republicans and Fox News react after the event as most logical path for Trump will cut into both their funding cycles. Expect survival mode to kick in and both the Republicans and Fox News to turn on Trump. The move to the new equilibrium in a politically fractured country like US could raise market risk in the short term.

We received a lot of comments about our view on the transition of Western economies from capitalism to socialism while in denial. Almost everyone agrees it is happening but may be differ on scale of change. But at the same time almost everyone assumes we can switch back…and that may be partly because we are all in denial. My argument is simple...once you show people the easy path to cheap everything, they will not want to go back to how it was…even if they know that it’s not sustainable. Majority of the population is low to middle income earners and they feel that it’s their turn to print money for themselves like the top end of town has done for the last decade. Self serving alternative fact based politicians will always offer unsustainable fantasy based slogans to win votes.

Have you heard of “Jobs and Growth” while in a multi-year rate cutting cycle because there wasn’t enough jobs or growth. Current federal government is the only one in multiple decades to not have a rate rise cycle despite being in power for three consecutive terms. The federal government and RBA knew that artificially bringing forward consumption for the best part of 5-6 years will leave a massive structural mess in an economy already struggling with the lack of reform. Just add a global pandemic and it was never going to end well. In the world of alternative facts and fake news, interest rates are king because you cannot fake it. It is up or it is down…there is no confusion. If the economy is weak, you need to cut rates and we have been cutting and cutting. Australian interest rates were below inflation before pandemic. Our economy was a mess before the world became a pandemic mess. If the V shape recovery is to get back to the mess we were pre pandemic, 2021 is not going to be pretty and don. Expect Federal government to call an election as early as possible before everything starts to slide. Expect RBA to cut rates again by 5-10bps to further help the election cycle with another unaffordable asset bubble booster. The federal government and RBA have delivered massive handout to corporate Australia and in the future tax payers will have to repay all of handouts via higher taxes like hiking GST. Every politician knows that it is easier to deliver a reassuring lie than an inconvenient truth. In the Western economies, socialism is the inconvenient truth while capitalism is the reassuring lie!

Retail sales are key measure of the economy as most are driven around 60-70% by consumer spending. All the major comparable economies are seeing pullback in retail sales while Australia has remained strong due to handouts. Expect Aussie retail sales to start weakening with global trend through the year as handouts subside.

US market last close > US market started over 200 up and finished 116 up. The main catalyst is comments from Yellen suggesting massive money printing or recession. Tax rise after Covid or was it to buy time to get the stimulus passed first. Inevitably debt will blow out. Inflation will rise and push bond yields higher. Currency debasement will continue as economic woes will take time to play out. As the new administration takes charge, they are going to realise the structural problems are worse than expected. Bonds higher, USD lower and commodities better. Republicans are turning on Trump and Netflix positive pop after market result update. Inauguration tonight and executive orders will fly.

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

Not already a Livewire member?

Sign up today to get free access to investment ideas and strategies from Australia’s leading investors.

Deep Data Analytics provides this financial advice as an honest and reasonable opinion held at a point in time about an investment’s risk profile and merit and the information is provided by the Deep Data Analytics in good faith. The views of the adviser(s) do not necessarily reflect the views of the AFS Licensee. Deep Data Analytics has no obligation to update the opinion unless Deep Data Analytics is currently contracted to provide such an updated opinion. Deep Data Analytics does not warrant the accuracy of any information it sources from others. All statements as to future matters are not guaranteed to be accurate and any statements as to past performance do not represent future performance. Assessment of risk can be subjective. Portfolios of equity investments need to be well diversified and the risk appropriate for the investor. Equity investments in listed or unlisted companies yet to achieve a profit or with an equity value less than $50 million should collectively be a small component of a balanced portfolio, with smaller individual investment sizes than otherwise. Investors are responsible for their own investment decisions, unless a contract stipulates otherwise. Deep Data Analytics does not stand behind the capital value or performance of any investment. Subject to any terms implied by law and which cannot be excluded, Deep Data Analytics shall not be liable for any errors, omissions, defects or misrepresentations in the information (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the information. If any law prohibits the exclusion of such liability, Deep Data Analytics limits its liability to the re-supply of the Information, provided that such limitation is permitted by law and is fair and reasonable. Copyright © Deep Data Analytics. All rights reserved. This material is proprietary to Deep Data Analytics and may not be disclosed to third parties. Any unauthorized use, duplication or disclosure of this document is prohibited. The content has been approved for distribution by Deep Data Analytics (ABN 67 159 532 213 AFS Representative No. 1282992) which is a corporate approved representative of BR Securities (ABN 92 168 734 530 and holder of AFSL No. 456663). Deep Data Analytics is the business name of ABN 67 159 532 213.

1 topic

Founder & CEO
Deep Data Analytics

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...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.