Sunset Strip - 14th September 2020

Local market had a volatile day that went almost nowhere before the big macro trade in the last hour jammed up the big three sectors to finish a positive day. Best sectors were materials and energy while the worst were tech and property. US futures running on another vaccine hope but don’t let the reality get in the way of another cheap tax payer funded health care M&A play!!!

US market’s Friday finish was another volatile day with Russell and NASDAQ down, S&P flat and DOW up. DOW started up 250 and then rolled over to be down 50 and ended up finishing above 100. There has been a consistent end of day pump this whole week to close better. Bonds and commodities higher while USD and Gold lower. NASDAQ had the worst week since March and well into correction phase. Gold and Tech were the weak sectors while Industrials and Financials were the best. Disputing Whitehouse optimism, CDC head Fauci said US pandemic state was disturbing. US Fed week and risk is that they disappoint market expectations of higher stimulus like ECB!!!

The most common used fiscal/monetary policy mix around the world now is Modern Monetary Policy (MMT). MMT can drive economic recovery when used to fund growth while governments are handing out billions to corporate profits and dividends with no growth upside or flow down effects. It has created an unholy link between excess government spending and excess central bank balance sheet expansion with no regard to how that will unwind. All roads to hell are built on good intentions and MMT is no better when vested interest groups are behind the government agenda. There is only one real funder of debt in the global markets and that is the government. Japan was able to carry this MMT ponzi scheme by allowing cheap Yen to be invested overseas for better returns until now. Since everyone is now in MMT, cheap money is building debt and not getting better returns. Central Banks are stuck to unrealistic growth outlook to justify the money printing. Bit like the wages growth view RBA was pushing when real unemployment was rising in 2019. MMT will be very ugly when inflation comes and it’s already coming to the US as US$ declines!!!

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! 

Buckle up....volatility is back and it's going to get rocky!!!

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