United Socialism of America needs more stimulus...a lot more!
Local market had another positive day on global traders chasing the currency/value trade in another low turnover day. Local fundies look to be already on holiday mode with private schools while public schools still have this week to go. Bond market remains weak and putting pressure on US Fed and ECB to get the printers going again. Aussie 10 year bond yield is firmly above 1% now and will drag US bond yield higher.
US markets continue to outperform the fading economy on the view that US Fed will save them. US economy has clearly stalled while pandemic lockdowns are starting to play out. Just about every sector in the US is swimming in government handouts or tax exemptions or legal protection from the US government. US corporates have enjoyed unparallel socialism while the trickle down economics has mainly failed. Inequality has blown out while the wealth transfer during the pandemic has been historical. The current trend suggests that US will be moving towards substantial money printing and this time it will be targeted towards main street than wall street. If there is anything we have learnt from the failed Japanese stimulus model is that the political pressure is too high to ignore the fading economy despite historical stimulus. Once you go down the rabbit hole, there is no plan B. Endless money printing will see further USD debasement and more frequent boom/bust cycles. Are we already too far down to turn back from “United Socialism of America”? Time will tell but history suggests we are!!!
US 30 year bond yield has now gone above S&P 500 dividend yield. The risk weighted return in the bond market is better than equities as USD continues to slide lower. Economic data continues to crater and may flip USD, Bonds and Equities on a risk off trade.
US market on Friday night was up on reflation trade despite another data point confirmed that the economic recovery has stalled. Nonfarm payrolls were supposed to drop from above 900k to below 600k but it came in at 245k. That’s not a miss...that’s danger territory. US bond yields hit 97 bps, USD ticked up and Value outperforming Growth. Reflation has Russell up 2.4% while NASDAQ was up 0.7%. Commodities ticked higher as stimulus hope in the US covered Brexit mess in EU. Yes...BJ has a lot of DIY mess to deal with in UK. San Francisco just issued stay at home order for Bay Area. More to come. Value sectors in Energy, Property and Banks were the best. Bonds are flagging reflation panic ahead.
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!
NEXT SUNSET STRIP ON FRIDAY 11th DECEMBER!!!
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pdf attached
SunsetStrip20201207.pdf
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