Sunset Strip - 25th September 2020

Local market started positive on US sentiment before Aussie government removal of “responsible lending” standards put a rocket behind banks to further push the market higher. The banks delivered nearly half the move in the market today. 

The banks have been caught breaking just about every regulatory category over the last decade and they still haven’t had the results of the royal commission get executed. Australia has an over supplied property market with historically high unemployment, deficit and debt in a recession while the financial sector that has track record of breaking the laws is given more rope to hang the consumers and get away with dubious lending practices of the past. The strategy is consistent between RBA and the government. Leverage up and keep the bubble going and hope to hell that the global economy recovers in time to grow and inflate the debt away. There is no plan B when you are swimming in asset bubbles and playing geopolitics with your main trading partner in China. The only problem with this theory is that zombie business are being kept alive for political reasons and that will only prolong the recession recovery cycle. Endless stimulus strategy in most parts of the world have created a bigger and deeper recession that will take even longer to unwind. The deleveraging unwinding of the current economic cycle will take more than a few years…could be a decade or longer of higher taxes and lower growth!!!

Australia is starting school holiday cycle and most of the world ex China is dealing with pandemic waves. Northern hemisphere is moving into winter season as EU countries are looking at restrictions while most of the Emerging Markets ex China have been savaged by the pandemic. US futures are slightly positive on better outlook for stimulus as Whitehouse comes out throwing handouts for votes with election just over a month away.

We have had the relief rally in USD on the back of Covid 2.0 in EU trashing Euro. AUDUSD has been belted on that with RBA and Treasurer adding more negative news. We may start to see it unwind and USD return to the medium to long term slide trend.

US market was volatile and directionless overnight with DOW ranging between -200 to +300 and then finishing up 50. Gold and Utilities were the standout sectors in the US. Economic data remains patchy with initial jobless rising and continues above 12m after 6 months. EU and US are in second/first wave while restrictions are coming to EU and political spin for US. US$ faded and Bonds and Commodities ticked up. Whitehouse delivered another alternative health care plan that talks to a lot of areas but delivers nothing much as all.

The next few weeks in Australia will be global investors versus local retail investors as most fund managers will be away for school holidays. We have a month and quarter end in that time and a US election only a month away.

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

There is more to the Global Health Crisis (GHC) than just a downgrade cycle!!!

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