Local market popped hard at the open on a low turnover day and remained there as global investors boosted sentiment chasing the rising AUDUSD. Local fund managers are mainly still on holiday and expect them to get back and moving next week. It was clear to see the global passive money was flowing from bonds to equities after the solid China data update yesterday. US markets major indices are contradicting themselves while the new administration is unlikely to waste firepower protecting Wall Street over Main Street. Main Street recovery plans will drive Wall Street in the medium to long term but likely to drive pullback to lower multiple in the short term. The reality is that the US earnings season needs to deliver big beats to compensate for the drop in multiples from reflation. If the outlook statements continue to underwhelm like the financials on Friday, we could be in for a rough ride. It is US inauguration week and there are more Green Zones in US than in Iraq and Afghanistan put together. The new policy settings under the Biden camp will start to flow through executive orders as soon as Thursday/Friday. We already had the good news about stimulus, now we are going to find out how to pay for it. Higher taxes and more regulations are coming while Tech, Health Care and Financials are leading risk sectors.

Inequality in the US has blown out over the past decade due to monetary and fiscal policies that mainly drove up asset prices with the view that trickle down economics would save the economy. This is like giving opiates to an injured person. If you give it for too long, it becomes addictive and creates a person dependent on the drugs that were supposed to help them recover. It is all about giving a boost and then doing reform to deliver sustainable growth that will benefit everyone. Due to prolonged stimulus help, the US economy has mainly evolved to suckle on monetary and fiscal handouts as opposed to driving economic growth. US was leading a global synchronized recovery that started in 2015/16 as stimulus was being reduced. If they reformed the economy for the new future at that point of the cycle, US would have kept ahead of China. Instead of reforming, US fell back to more stimulus to drive even more growth without putting in place the harder reforms. It left US economy weak and susceptible to shocks by late 2019. Most models would have been expecting a recession in 2020 or 2021. The pandemic was unique in the context that it hit at the weakest segments of the US economy and it hit very quickly. The political nature of pandemic management meant that basic steps that would have saved thousands of lives were ignored. This forced extreme fiscal & monetary stimulus to be employed and we can’t turn off the tap. It was no wonder that US lead the world into recession and yet China managed to avoid it. The last decade has seen US corporates and top end of town convert their wealth accumulation model to benefit from endless stimulus and almost deliver ignorable trickle down economics. The US economy is very much like a drug addict looking for the next hit. The ever expanding US inequality means more top down stimulus was never going to work. The new approach is sending checks to the public directly to bypass the mistakes of the past. Unfortunately this approach comes at a time when debt is sky high and inflation is picking up. We see checks going out every quarter and the masses voting for the side that is willing to pay for it. Government will move to curb rising costs in tech and healthcare. To pay for it, government will have to raise taxes. US has already evolved to socialism. It just doesn’t know it yet. When socialism runs out of money, it is not a big leap to dictators and communism.

It's been a little over sixty years since Russia's Khrushchev delivered this - September 29, 1959. As you read, think about how many things the Socialistic Democrat party has promised to do or governments in the West are promising to do.

This was his address…

"Your children's children will live under communism, You Americans are so gullible. No, you won't accept communism outright; but we will keep feeding you small doses of socialism until you will finally wake up and find you already have Communism. We will not have to fight you; We will so weaken your economy until you will fall like overripe fruit into our hands." "Democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

Do you remember Russia's Khrushchev saying this in 1959 and people just laughed? Remember, socialism leads to Communism. So, how do you create a Socialistic State? There are 8 levels of control; read the following recipe:

1. Healthcare - Control healthcare and you control the people.
2. Poverty - Increase the poverty level as high as possible, poor people are easier to control and will not fight back if you are providing everything for them.
3. Debt - Increase the debt to an unsustainable level. That way you can increase taxes, and this will produce more poverty
4. Gun Control - Remove the ability to defend themselves from the Government That way you can create a police state.
5. Welfare - Take control of every aspect (food, housing, income) of their lives because that will make them fully dependent on the government.
6. Education - Take control of what people read and listen to and take control of what children learn in school.
7. Religion - Remove the belief in God from the Government and schools because the people need to believe in ONLY the government knowing what is best for the people.
8. Class Warfare - Divide the people into the wealthy and the poor. Eliminate the middle class; this will cause more discontent and it will be easier to tax the wealthy with the support of the poor.

Interestingly almost all the points being mentioned above are main areas of trust that are breaking down in Western economies. It is ironic that Americans hate socialism and yet they are already living it. They love their freedom but they constantly attack it. Can they flip a switch this week and flip back? Can UK and Australia avoid the same trap? Have we gone too far down the rabbit hole of polarized politics and greed? Will the vested interest groups allow the reforms to move the Western economies forwards? History does not paint a positive picture of the West in denial but I am hopeful…may be slightly in denial. As they say…life will always find a way…but it may not be easy or pretty or what we are used to. Socialism is the new Capitalism but don’t tell anyone!

US market last close > US market closed for Martin Luther King holiday. Europe was choppy and slightly positive. Main moves were bonds, USD, Gold and Copper were higher and Oil lower. China delivered solid GDP data and that may take away need for rampant stimulus...even some tightening as they take the foot off the pedal. It's a waiting game for Biden's camp to flag their moves post inauguration. Expecting a flurry of executive orders to unwind few major political statements like immigration and climate change. Taxes and regulations will come after. Tech will be under pressure on regulations while Health Care needs to prepare as well.

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

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