5. The economy develops momentum on its own because of pent-up demand, and depressed hospitality and airline stocks become strong performers. Fiscal and monetary policy remain historically accommodative. Nominal economic growth for the full year exceeds 6% and the unemployment rate falls to 5%. We begin the longest economic cycle in history, surpassing the cycle that lasted from 2010 to 2020.

6. The Federal Reserve and the Treasury openly embrace Modern Monetary Theory as their accommodative policies continue. As long as growth exceeds the rate of inflation, deficits don’t seem to matter. Because inflation increases modestly, gold rallies and cryptocurrencies gain more respect during the year.

7. Even as energy company executives cut estimates for long-term growth, near-term opportunities are increasing. The return to “normal” increases both industrial activity and mobility, and the price of West Texas Intermediate oil rises to $65/bbl. Rig counts increase and energy high yield bonds rally soundly. Energy stocks are among the best performers in 2021.

8. The equity market broadens out. Stocks beyond health care and technology participate in the rise in prices. “Risk on” is not without risk and the market corrects almost 20% in the first half, but the S&P 500 trades at 4,500 later in the year. Cyclicals lead defensives, small caps beat large caps and the “K” shaped equity market recovery unwinds. Big cap tech is the source of liquidity, and the stocks are laggards for the year.

9. The surge in economic growth causes the 10-year Treasury yield to rise to 2%. The yield curve steepens, but a concomitant increase in inflation keeps real rates near zero. The Fed wants the strength in housing and autos to continue. As a result, it extends the duration of bond purchases in order to prevent higher rates at the long end of the curve from choking off credit to consumers and businesses.

If we contrast this list of potential surprises, I get the feeling they are less ambitious than in years past. I have heard the rumour from many quarters that President Trump is planning to set up his own TV station and there is plenty of speculation that the entire effort to overturn the election is to create a sound footing for a re-run at the title in 2024.

Rolls-Royce Holdings PLC will shelf its next-generation UltraFan engine program and halt investment until a new aircraft is launched as the industry grapples with low demand for new airplanes, the Financial Times reports.

--The British engineering giant will finish testing the new engine in 2022 but will then put the program "on ice," including postponing the search for an industrial partner for the new propulsion system, according to the FT.

--Rolls-Royce Chief Executive Warren East said he expects a significant delay until the new aircraft appear as the industry reels from the acute shock of the coronavirus pandemic, the FT reports.

The challenge for many industrial companies is that their growth prospects are dependent on economic growth and the ability of their customers to boost capital expenditure. At present the enthusiasm which greeted vaccine approvals is being tested by the evolution of new strains of the COVID-19 virus. That suggests capex decisions will likely be delayed until customers have visibility on what their post pandemic businesses will look like.

I hope you are enjoying the holidays and looking forward to a better year next year.

Here’s another one of Charles Gave's excellent articles-the oil price is on the move thus starting to bear out his fear of a 1970s-type repeat.

Secondly, regarding Ethereum, have you been able to quantify any price target and if so, what technical data/events have you chosen to use?

Thank you for this interesting report which repeats Gave’s earlier call for an inflationary boom with which I agree. However, I’m not sure we are in the same kind of bull market in oil that we had in the first decade of this century. The history of secular bull markets in oil points to rising prices lasting as long as it takes new sources of supply to reach market. That is followed by decades of ranging.

Some lidar suppliers gained Tuesday after Reuters reported that Apple Inc. plans to build a self-driving car for consumers and is tapping outside partners for elements of the system as it develops its own battery technology.

Apple is approaching companies for some parts, including lidar sensors that provide autonomous cars with a real-time, 3-D view of the world, the report said, citing unidentified people familiar with the matter.

Lidar supplier Luminar Technologies Inc. rose as much as 12% on Tuesday, while Velodyne Lidar Inc. surged 16%. Blank-check firms that are bringing more lidar players to the market also advanced: InterPrivate Acquisition Corp. climbed 17%, while Collective Growth Corp. jumped as much as 24%.

Apple has been working on driverless car technology since 2014, but pared back its ambitions from a full-fledged vehicle in 2017, Bloomberg News has reported. Since then, Apple has been working on the underlying autonomous system. The company has been deciding whether to attach this system to its own car, or existing vehicles, or to partner with an established carmaker, Bloomberg News reported earlier this month.

Apple enjoys an almost 40% gross margin on its iPhones and tablets. Porsche has about a 47% gross margin on the 911 and Ferrari has a more than 50% gross margin on its cars. Tesla’s is 16.5%. Toyota’s is 18% and Volkswagen’s is 19.5%. No mass market producer has been able to achieve margins on the scale technology companies are accustomed to.

Within the company, engineers are scrambling to assess the fallout and figure out workarounds to secure the equipment it needs, much like Huawei did two years prior, another person familiar with the matter said. At issue is the administration’s focus on drawing a line at 10-nanometer technology, banning the sale of equipment intended for use in more advanced processes. SMIC could conceivably repurpose 80% of older-generation gear to crank out more advanced chips, but that tactic won’t sustain production for the longer term and much depends on how far President-elect Joe Biden decides to take the rules, a third person close to the situation said, asking not to be identified discussing sensitive matters.

“The company has already got critical equipment and materials needed to continue production,” said Xiang Ligang, Beijing-based director-general of the Information Consumption Alliance. “In the past, China wasn’t too sensitive about the technological bottlenecks it has. But now, Beijing is fully aware of the potential damage and is determined to solve these issues.”

Chinese government-backed SMIC, a manufacturer of chips for global names from Qualcomm Inc. to Broadcom Inc., relies on U.S. gear for its longer-term technology road map. While its engineers may be able to sustain research and output in the short run, the latest sanctions basically freeze its capabilities while the industry advances. If a Biden White House takes it to the max, SMIC could be blocked from 7nm or more advanced technology while overseas rivals like Taiwan Semiconductor Manufacturing Co. dominate the market. The heightened scrutiny may also discourage clients leery of dealing with the uncertainty.

Self sufficiency in semi-conductors is a central policy objective for China. It is the basis on which the country seeks to compete with the USA in future. China may be able to do without Australian coal or wine but it has no hope of competing effectively on the geopolitical front without securing the supply line for technology’s basic ingredients.

The U.K. confronted threats of food insecurity and panicked shopping days before Christmas as European nations restricted trade and travel to guard against a resurgent coronavirus, offering Britain a preview of the border chaos to come in the absence of a Brexit deal.

Fearing a fast-spreading new strain of the virus that forced a strict lockdown across England, France on Sunday suspended travel from the U.K. for 48 hours and wants a stricter testing regime before lifting the blockade. Germany and Italy halted arriving flights from Britain with Spain and Portugal following suit. The crisis gave renewed urgency to negotiations for a trade deal with the European Union that remained at a critical stage after weekend talks.

Late Sunday, the Port of Dover stopped freight moved by truck into France while allowing unaccompanied cargo to keep moving. Traffic into the U.K. is unaffected, though truckers often run supplies in both directions and the latest outbreak in the heart of England may discourage them from entering the island.

The announcement over the weekend that one of the evolved versions of the original COVID--19 virus has travelled from South Africa to the UK has caused a panicky response from European governments. The new variant appears to be more infectious but no more lethal than the last. That suggests it will quickly become the dominant form of the virus circulating the global before long. Since the newer version is now already in Italy, closing borders with the UK is unlikely to have any effect on its ability to spread inside the EU.

Very interesting interview for those interested in our regional and international affairs Just ignore the first 3 minutes of the intro in the Malay language if you don't understand Bahasa.

Worth 93 minutes of you time. Download & watch at your leisure.

Kishore Mahbuhani, a Singaporean diplomat, Mahbuhani is brilliant.

Thank you for this video which I agree highlighted a number of interesting themes. The challenge for governments in Asian countries is how to balance the demands for loyalty coming from the world’s superpowers. That’s a particular challenge for those that have historically depended on US support for markets and military protection. They now see their primary growth engine in China while China’s Belt and Road program is the primary source of FDI for many potential projects. 

Andrea Enria, head of the ECB’s supervisory arm, said in a Bloomberg Television interview that there’s limited visibility on asset quality and that the bank will revisit its decision in September. He also called for moderation on banks’ variable pay.

The cap makes the ECB one of the more hawkish banking watchdogs in Europe. The Bank of England said last week that it will allow lenders to make payouts that don’t exceed 0.2% their risk-weighted assets, or 25% of cumulative quarterly profits over 2019 and 2020 after deducting shareholder distributions.

Europe’s banks are hamstrung by negative interest rates but they still charge fees for just about everything and don’t pay an interest rate. The most significant factor in their favour is the bad debts issue is slowly being eroded. That particularly true on the periphery. 

That strategy includes reducing restrictions on travel, investment and remittances for the island nation that are perceived to disproportionately hurt Americans and ordinary Cubans, said the people, who requested anonymity because the new administration is still coming together. Other measures that target Cuba for human rights abuses would remain in place, the people said.

The prospect of a détente between Washington and Havana rekindles memories of the thaw that Biden helped champion during the Obama administration, when the two nations restored diplomatic ties that had been broken for decades following Fidel Castro’s rise to power.

But the president-elect is returning to an even messier scene: the Cuban economy is suffering its worst crisis since the collapse of the Soviet Union amid fallout from Covid-19 and U.S. sanctions. At the same time, Cuban intelligence officers have helped prop up Nicolas Maduro in Venezuela, allowing his regime to consolidate its grip on power in defiance of demands for free and fair elections.

It looks increasingly likely that outside of the China question, the USA is likely to migrate back to many of the foreign policies championed during the Obama administration. There may also be a quid pro quo in the offing. Perhaps some assistance on the Venezuela question will be provided in return for easing sanctions.

This article today struck me as being a profound historical perspective on the UK and the EU. It reinforces my view (and yours I think) that the EMs are where the growth will be for the medium-long term. Whether we in the UK will be able to capitalise on this is our question.

Thank you for this emotional article which highlights the frustration many people feel with both the trajectory of European integration and the UK’s membership of the long-term federal project. As David used to say, “the markets are an international beauty contest where we get to be the judges.”

Generally speaking, an investor’s primary motivation for making a portfolio allocation to emerging market equities is the desire to tap into superior structural growth. However, equity market returns rarely correlate tightly to economic growth. There are many attractive secular growth companies in emerging markets—and they exist regardless of the economic growth conditions of their domestic economies. Investors wanting to tap into the powerful long-term benefits of superior structural growth trends can benefit from seeking out highly active strategies. In our experience, a strategy succeeds by continuously seeking out innovative companies with superior growth trajectories. A clear and consistent investment philosophy and repeatable investment process can help to ensure that a portfolio reflects bottom-up decisions that incorporate the superior growth available in EM equities.

The growth opportunity set is bigger than is generally thought. EM companies face challenges and problems different from those of their developed market counterparts, but their distinct circumstances often spur them to innovate and disrupt existing practices. EM companies are moving up the value chain, from export-oriented business models built on low-cost labor and cheap manufacturing to higher-value-added businesses based on technological and scientific innovation. Low recognition of these dynamics by investors and indexes creates an opportunity for growth-minded investors. Add to the mix companies that execute well to exploit a superior economic growth backdrop, and the opportunity set expands.

A link to the full report is posted in the Subscriber's Area.

China’s success in developing domestic champions has been truly impressive and they are now among the largest companies in the world by market cap and revenue. Success in expanding internationally has been limited in the technology sector to the Chinese diaspora because the global market tends to be much more competitive than the sheltered environment domestically.

A l;ink to the full report is posted in the Subscriber's Area. 

Europe and North America are more likely to receive ready access to vaccines developed by western companies in the short term. Meanwhile China is already exporting its vaccine candidate despite the apparent lack of rigour in testing. The first batches of Sinovac’s vaccine arrived in Indonesia today. It remains very likely that within six months there will be a significant oversupply of vaccines. I fully expect the rollout to go much faster than many people expect.

Regarding your comments on the mail about fake news: I would like to point out that your very sound and accurate analysis of the situation this year has helped me tremendously with my investments AND it has helped my mental health a lot. For both of these I am most grateful for your services. please do keep up the good work.

Thank you for your kind words. Mental health is a topic that is personal to all of us but tends to be sensationalised when it is made public. Personally, I have gone through multiple stages of surprise, hope and anger over the last year. That has been as much a reaction to the market as to the ineptitude of the official response in most countries. Many years in the financial business have conditioned me to equate despair in others as a buying opportunity. Despair in myself is usually a sign my position is too large and by opinion was incorrect.

On November 24th I posted a review of candidates I believe likely to prosper in the emerging post-pandemic market. It was well received by subscribers so I will post an update on my views on the first Friday of the month going forward. That way subscribers can have an expectation that long-term themes will be covered in a systematic manner and will have a point of reference to look back on.

Media hysteria about the 2nd or 3rd waves has not led to new highs in the number of deaths. The success of biotech companies in deploying vaccines means there is going to be a substantial recovery in the economic activity in 2021 and going forward.

The stay-at-home champions saw their sales growth surge in 2020. It will be impossible to sustain that growth rate in 2021. That’s particularly true for mega-caps. One-way bets on the sector are likely to work less well in the FAANGs going forward.

At its heart, the rotation is based on the idea that there’s a lot of money in the economy waiting to be spent on things besides video streaming and online shopping. The U.S. personal savings rate was 7.2% at the end of 2019. By April it had surged to 33.7%, and it was still 13.6% in October—almost double where it started the year. Deposits at U.S. commercial banks swelled to almost $16 trillion in November, up from $13.2 trillion at the end of last year. If consumers revert to their pre-pandemic ways, that could set off what Jim Paulsen, chief investment strategist for the Leuthold Group, has called “a growth bomb,” as companies gear up to replace lean inventories.

Fund managers with a value bias say there are still opportunities to take advantage of the change in investors’ tastes. Chris Davis of Davis Funds points to the banks Wells Fargo & Co. and Capital One Financial Corp., whose prices were hammered when lockdowns began in March and still haven’t fully recovered. Davis thinks investors have overlooked how banking regulations enacted after the global financial crisis have made these lenders better able to handle recessions. “When you look at their valuations, the amount of cash they produce, the capital ratios that they have, the reserves they’ve been able to put up—they really have this characteristic of resilience and durability, and yet are priced at this sort of shockingly low level,” he says.

Value has outperformed growth over the last month and yields have been rising. That’s not a coincidence. Value metrics need a discount rate against which to make comparisons while growth sectors tend to do best when interest rates are low.

A link to the full report is posted in the Subscriber's Area. 

If reflation is the new buzzword for governments, resilience is what companies are focusing on. Many were caught flat-footed by the pandemic and they will now actively transition to greater diversity of suppliers, holding more inventory and nearshoring manufacturing capacity.

The bloc has already made a land grab for London’s euro swaps clearing business, urging its banks to accelerate a shift to Europe. Deutsche Boerse AG’s Eurex Clearing has built up a 19% share of the business over recent years although it is dwarfed by London’s market share.

In recent weeks, Goldman and JPMorgan Chase & Co. have indicated that between them more than 300 staff will move to continental cities. Goldman is shifting as much as $60 billion in assets to Frankfurt, while JPMorgan is moving about $230 billion to the German city.

Consultancy EY said in a new report Monday that only 10% of big financial services firms are planning to establish or expand operations in the U.K. in the coming year, discouraged by the uncertainties of Brexit and the Covid-19 pandemic. That’s down from 45% in April.

The City of London is the UK’s cash cow and that is particularly true since North Sea oil went into decline. The City employed 360,000 people in banks and contributed £31 billion in taxes in the 2017. In the aftermath of Brexit, both those figures will be smaller but not catastrophically so.

I have been a subscriber for just over 30 years, and in that time, I can't recall many times when a clear and concise analysis of economic and political conditions was as important as it is today. You are doing a wonderful job at keeping the collective informed, allowing us to see a broader picture than our individual biases might otherwise give us. Thanks so much!

And

Congratulations our last subscriber commentary was exceptional. You have done wonders for my confidence and ability to help my clients. Keep up the good work. Best wishes

Thank you both for your kind words and it is enormously gratifying that subscribers find value in the Service. That’s particularly true for veterans who have been with us for decades. Given both the demand and positive response for a reasonably succinct list of thematic investments that cover the prevailing market outlook, I’ll review the list on at least a monthly basis. The first Friday of the month which would coincide with the Big Picture Long-Term audio/video makes sense to me.

The irony of the parsimonious attitude toward pay is governments are throwing around billions of dollars in stimulus programs to support the economy and ratcheting up debt to an extent that makes such restraint almost irrelevant.

To make the new wage guidance more palatable, the federal government scrapped a 2% cap on wage gains, meaning that when businesses are boosting pay, public servants could also enjoy larger gains.

The danger is “a negative feedback loop becomes entrenched: low inflation outcomes lower the public’s inflation expectations, which in turn keeps inflation low,” said Sheard, who hails from Australia. “This in a nutshell is the story of Japan’s two-decade deflation.”

It beggars’ belief that public sector wages can increase faster than the private sectors but such is the power of unions. It seems people often ignore the fact that all public wages are ultimately paid from tax revenues. Everything possible should be done to celebrate the ingenuity of the private sector in order to boost profitability and widen the tax base.

So far, investigations have uncovered more than $400,000 in state benefits paid to death row inmates, and more than $140 million to other incarcerated people in California’s 38 prisons, according to Sacramento County District Attorney Anne Marie Schubert, who helped organize and lead a task force that uncovered the alleged dupery. In total, payments to those ineligible due to incarceration in prisons and jails could total nearly $1 billion, the prosecutors claim.

“The murderers and rapists and human traffickers should not be getting this money,” said Schubert. “It needs to stop.”

Kern County District Attorney Cynthia Zimmer, whose district has five prisons, the most of any county in California, called the scope of the scams shocking. Zimmer said her office had found about $16 million in allegedly fraudulent claims in her county alone.

“I’ve been a prosecutor for 36 years,” she said. “I have never seen fraud of this magnitude.”

Newsom on Tuesday announced a task force to tackle the problem.

“Unemployment fraud across local jails and state and federal prisons is absolutely unacceptable,” the governor said in a statement. “Earlier this year, I launched a strike team to expedite unemployment payments and to minimize abuse of the system. When we saw evidence of fraud in correctional facilities, I directed the Employment Development Department to review its practices and to take immediate actions to prevent fraud and to hold people accountable when fraud is not prevented.”

The USA is one of the most advanced countries in the world but investment in digitising the workings of the bureaucracy are absent. That’s a symptom of the polarisation in the political framework because neither side is willing to risk upsetting their base. The big question is how long that can go on given the size of deficits at both a federal and state level. 

I hope life for you in California is more fun than it is here in England. But let's hope we really are past the low point as far as the virus is concerned. I had thought that would be true for economies too, but this latest move by President Trump (summarised in the article by Ambrose Evans Pritchard) does raise questions. With this move, which asset classes do you think will benefit and which will lose on a 3-6 month timescale?

Best wishes to you and family. 

Thanks for the well wishes and this article which may be of interest to the Collective. All is well with us since the streets were blessedly free of protestors following the election. I guess they got the result they wished for. Here is a section from the article:

He instructed Fed chairman Jerome Powell to return the unused portion of a $454bn (£342bn) account approved by Congress during the market meltdown in March. This seed money gave the Fed $4.5 trillion extra lending power under a policy of 10:1 leverage and had an electrifying effect on market confidence, helping avoid the errors made in 2008.

Krishna Guha from Evercore ISI said the Fed’s market stabilisation policy had been politicised. Congressman Bharat Ramamurti, a member of the House oversight committee on stimulus, called Mr Mnuchin’s move an unjustified and ideological decision by the treasury department.

The Fed retains its monetary policy powers and can purchase further US treasury bonds but that is a blunt tool at this juncture unless it is married to aggressive fiscal expansion, which the Republican Senate has vowed to block.

The Fed is concerned that more QE will chiefly inflate asset prices without doing much to help the real economy, exacerbating social inequality.

Congress stripped the Fed of its discretionary powers under Article 13 after the Lehman crisis. The Fed now needs permission from the treasury to go beyond its normal mandate. This was granted immediately during the panic in late March.

Shankar, director of the Center for Retailing Studies at Texas A&M University. “There were two forks in the road. They could have scaled up online, or they could have moved into adjacent brick-and-mortar businesses. They chose brick-and-mortar, because it was lower risk in the short term,” Shankar said. “It was a missed opportunity and they’re still hurting from that.” 

If GameStop knew what its problem was, why didn’t it do more to address it? Cohen and Shankar both cite internal resistance to change. That may be right, but it's not as easy as turning down the “physical retail” dial and turning up the “digital commerce” one. I’ve spent enough time in GameStops to come to appreciate their strange charms, and I can tell you that the company's unique advantages don’t necessarily translate to the internet.

GameStop locations don’t seem like local bookshops or bike stores, but they bear similarities. Gaming remains enough of a niche interest that GameStop can create a sense of community just by employing people who know about video games and not chasing away the young men who make up a big proportion of their patronage. I’m now a lapsed gamer and wouldn’t exactly describe GameStop locations as pleasant. But there’s a kind of magic in a place completely dedicated to the activity that makes me want to clear my schedule, grab a controller and house a few Jolt colas. Plus the ability to pay for new games with old ones isn't a checkout option that is easily recreated in a mobile app. 

As the world comes out of the pandemic it is worth considering that if a brick and mortar store chain has survived this long, they might have something that is not easily replicable online. GameStop’s trade-in service is an example. So is the fact it is a place ignorant parents can go to ask about the game or apparatus their child has been badgering them to get. I’m increasingly of the opinion that some retail stores will persist because they offer to take cash which is impossible online. 

#1: A global synchronous recovery: We expect a broad-based recovery, both geographically and sectorally, to take hold from March/April onwards. Driving this synchronous recovery will be a more expansive reopening of economies worldwide and the extraordinary monetary and fiscal support now in place. Global GDP, already at pre-COVID-19 levels (based on seasonally adjusted GDP levels), continues to accelerate and is on track to resume its pre-COVID-19 trajectory by 2Q21. We expect China to return to its pre-COVID-19 path this quarter, and the US to reach it by 4Q21.

#2: EMs boarding the reflation train: After a prolonged period in which EMs have faced a series of cyclical challenges, macro stability is now in check. With the COVID-19 situation improving in a broad range of EMs, their pace of recovery is catching up. EM growth rebounds sharply in 2021, helped by a widening US current account deficit, low US real rates, a weaker dollar, China’s reflationary impulse, and EMs ex China's own accommodative domestic macro policies.

#3: Inflation regime change in the US: We see a very different inflation dynamic taking hold, especially in the US. The COVID-19 shock has accelerated the pace of restructuring, creating a significant divergence between the output and unemployment paths. With policymakers maintaining highly reflationary policies to get back to preCOVID-19 rates of unemployment quickly, wage pressures and inflation will pick up from 2H21. We expect underlying core PCE inflation to rise to 2%Y in 2H21 and to overshoot from 1H22, with the risk that it happens sooner.

A link to the full report is posted in the Subscriber's Area.

With millions of people out of work it is easy to form a gloomy picture of economic potential. However, even at a US unemployment rate of 10%, there are still 90% of people with jobs. Moreover, many people who have held onto their employment have boosted savings this year.

When 90% of people come through a crisis in OK shape and a significant minority come out ahead, there is ample scope for a significant bounce back in activity. There is a great deal of pent up demand in the global economy and all that cash on the side lines is fuel for bull markets. The fact monetary and fiscal policy is aimed to improving the outcomes for the remaining 10% suggests loss credit and low rates are here to stay.

Hungarian Prime Minister Viktor Orban says tying “political debates” to financial issues is a form of “blackmail” against countries opposed to migration.

Poland said this week that the provisions are a first step to forcing it to accept EU regulations on gay marriage, abortion, euthanasia and press freedoms. “It’s a means of political, cultural and ultimately economic colonization,” Justice Minister Zbigniew Ziobro said.

Highlighting the gaping divide, Dutch Prime Minister Mark Rutte called the current rule-of-law provisions the “bare minimum.”

German Chancellor Angela Merkel has spoken with EU leaders in recent days, including Orban and Morawiecki. In a sign there’s unlikely to be a quick fix, she described negotiations as “extremely difficult.”

The current challenge for the emerging federal European superstate is how to net off the priorities of socially liberal but fiscally conservative creditors with socially conservative but fiscally liberally debtors.

1.Vaccine-led Recovery to Lift Cyclical Assets
2. Navigating the Path
3. A Steeper Real Yield Curve
4. Europe: Two Steps forward, One Step Back
5. China: Forging Ahead, with Assets in Tow
6. A New Commodity Bull Cycle
7. EM Outperformance: More than Before, Less than Sometimes
8. Rotations: Cyclical, North Asia in Focus but Vaccine News Key to Near Term
9. In Search of New (and Old) Safe Havens, Hedges and Diversifiers
10. Risks from Corona and Beyond

A link to the full report is posted in the Subscriber's Area.

If we had to distill the priorities of governments next year there is only one word captures their intentions. Reflation. With millions of unemployed people, defaults only kept at bay by massive intervention and rising public discontent economic revival is the only possible solution. That’s true of every country. No one has been left unscathed by the pandemic. Whether the challenge has been domestic or from a loss of export markets, the solution is the same. Reflation.

Berlin police used water cannons to break up a large demonstration near Brandenburg Gate on Wednesday. Participants - - which totaled 14,000 people, according to police -- refused to
abide by distancing and hygiene rules, while some threw bottles and other objects.

Pressure has been growing on German authorities, which are facing a crunch meeting next week to lay out a long-term plan to fight the pandemic. With restrictions likely to be extended and intensified, public anger and political tensions are rising.

The demonstration was organized to oppose a law being debated by the Bundestag that would expand the government’s powers to place restrictions on the public. Critics say the measures go too far. The far-right Alternative for Germany likened the legislation to policies under authoritarian regimes.

While the freedom of assembly must be guaranteed, social distancing and other rules to contain the spread of the virus must also be respected, government spokeswoman Ulrike Demmer said during a regular news conference.

Facing down a water cannon is not something protestors will soon forget. It may yet prove to further fortify the resolve of the populist right wing movement to challenge the status quo.

The challenge for all governments as they measure their response to the pandemic is what freedoms to infringe. Everyone knows that temporary taxes have a tendency to become permanent. The legitimate fear is that if the government can close businesses by writ what is to stop them doing it again in future? With a clear precedent, the range of potential reasons for closing businesses can easily increase.

In April, Beasley said 135 million people faced “crisis levels of hunger or worse.” A WFP analysis then showed that COVID=19 could push an additional 130 million people “to the brink of starvation by the end of 2020.”

He said in Wednesday’s virtual interview from Rome, where WFP is based, that while famine was averted this year, the number of people facing crisis levels of hunger is increasing toward 270 million.

“There’s about three dozen countries that could possibly enter the famine conditions if we don’t have the money we need,” Beasley said.

According to a joint analysis by WFP and the U.N. Food and Agriculture Organization in October, 20 countries “are likely to face potential spikes in high acute food insecurity” in the next three to six months, “and require urgent attention.”

Of those, Yemen, South Sudan, northeastern Nigeria and Burkina Faso have some areas that “have reached a critical hunger situation following years of conflict or other shocks,” the U.N. agencies said, and any further deterioration in coming months “could lead to a risk of famine.”

Other countries requiring “urgent attention” are Afghanistan, Cameroon, Central African Republic, Congo, Ethiopia, Haiti, Lebanon, Mali, Mozambique, Niger, Sierra Leone, Somali, Sudan, Syria, Venezuela, Zimbabwe, they said.

Africa has, generally, come through the pandemic in much better shape than developed nations because of its large youthful population. That’s makes intuitive sense. COVID-19 affects the elderly more than any other demographic and Africa has more young people than anywhere. 

Pfizer and BioNTech shares both dropped on Monday -- reversing a surge in response to positive test results last week -- after rival Moderna Inc. said its Covid vaccine was 94.5% effective in a preliminary analysis of a large clinical trial. Moderna also said its candidate has a much longer shelf life at refrigerator temperatures than the Pfizer-BioNTech jab, which would make it easier to store and ship globally.

BioNTech is working on the storage issues, and Sahin said he’s confident that some of the current requirements around cold storage will change in the course of next year.

The successes in the clinic come even as the pandemic looks increasingly bleak in Europe and North America. The U.S. surpassed 11 million coronavirus cases on Sunday, while in Germany, BioNTech’s home market, Chancellor Angela Merkel pushed for a tighter lockdown.

The best-case scenario is all of the primary vaccine candidates prove both safe and effective. That would open up manufacturing capacity of as much as 7 billion doses by the end of 2021. That suggests there is real scope for massive overcapacity and that vaccine production will return to a low margin business.

CEP will connect about 30% of the world’s people and output and, in the right political context, will generate significant gains. According to computer simulations we recently published, RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030.

We also estimate that RCEP and CPTPP together will offset global losses from the U.S.-China trade war, although not for China and the United States. The new agreements will make the economies of North and Southeast Asia more efficient, linking their strengths in technology, manufacturing, agriculture, and natural resources.

The effects of RCEP are impressive even though the agreement is not as rigorous as the CPTPP. It incentivizes supply chains across the region but also caters to political sensitivities. Its intellectual property rules add little to what many members have in place, and the agreement says nothing at all about labor, the environment, or state-owned enterprises — all key chapters in the CPTPP. However, ASEAN-centered trade agreements tend to improve over time.

Southeast Asia will benefit significantly from RCEP ($19 billion annually by 2030) but less so than Northeast Asia because it already has free trade agreements with RCEP partners. But RCEP could improve access to Chinese Belt and Road Initiative (BRI) funds, enhancing gains from market access by strengthening transport, energy, and communications links. RCEP’s favorable rules of origin will also attract foreign investment."

The ratification of a free trade deal between China and much of Asia and Australasia is a significant bonus for its ambition of enmeshing as many countries as possible in dependency on its economy. China is already a major destination for exports from the wider region as well as a source of manufactured goods. This agreement will expand its role in the debt/credit markets too.

The encouraging signs are emerging after many European countries enacted new restrictions, including closing non-essential shops, bars and restaurants, in an effort to slow the pandemic. Ireland, one of the first to reimpose curbs, cut the number of new infections to about 360 in the latest 24 hours from more than 1,200 a day in mid-October.

Progress is mixed, with some countries still seeing big increases. Austria reported a record 9,262 new cases in the past 24 hours on Thursday. The government will meet on Friday to discuss whether further restrictions are needed after a second lockdown began earlier this month.

German Health Minister Jens Spahn said the new numbers in his country are encouraging but that it’s too early to speak of a new trend. The effect of the new measures can’t be evaluated yet, a spokeswoman said. Hospitals are still straining under the backlog of patients with existing infections.

Europe is going to be open by Christmas for exactly the same reason it was open for summer. Businesses can’t miss their peak season. It’s what makes or breaks a year in the normal course of events so one way or other figures will be massaged enough to ensure business open up in early December.

Thank you for bringing Rolls Royce to our attention recently. Thanks to you I was able to open a position which looks excellent now. Do you think the volatility in the share will continue for much longer? And what are your views about this share now? Thanks again very much.  

Thank you for your kind words and congratulations on taking opportunities in the market. The big question at present is about the trajectory or interest rates and bond yields. It will shape where risk appetite focuses. Investors will either favour recovery candidates on the basis that survivors will have more market share to expand into or they will continue to favour high growth/high leverage plays as they continue to disrupt incumbents.

However, the strong reading from the first large-scale trial to post efficacy results bodes well for other experimental vaccines, in particular one being developed by Moderna Inc. that uses similar technology. Its big trial could generate efficacy and safety results in weeks. If that study succeeds as well, there could be two vaccines available in the U.S. by around year-end.

Pfizer expects to get two months of safety follow-up data, a key metric required by U.S. regulators before an emergency authorization is granted, in the third week in November. If those findings raise no problems, Pfizer could apply for an authorization in the U.S. this month. A rolling review is in process in Europe.

So far, the trial’s data monitoring committee has identified no serious safety concerns, Pfizer and BioNTech said.

Leading the Race
The positive preliminary data mean the U.S. pharma giant and its German partner are on track to be first with a vaccine, after signing advance deals with governments worldwide for hundreds of thousands of doses. The companies have said they should be able to produce 1.3 billion doses -- enough to vaccinate 650 million people -- by the end of 2021. About 50 million doses are expected to be available in 2020.

“It shows that Covid-19 can be controlled,” BioNTech Chief Executive Officer Ugur Sahin said in an interview. “At the end of the day, it’s really a victory of science.”

This news is the foundation of the argument for removing social distancing guidelines by the end of the second quarter at the latest.

It no longer matters whether one agrees with wearing a mask, practising social distancing, vacating offices, opening or closing schools or the potential for overloading the healthcare system. The question of whether this was necessary or not is now irrelevant. The introduction of vaccines will render the argument mute.

Resolution requires concerted and consistent effort over a long period of time. It took 25 years to reform Finland’s primary education system before it topped the league in PISA scores. Singapore achieves superior health care outcomes at 25% of the cost of the US and 40% of Europe thanks to a system which gives consumers “skin in the game”.  It’s now thirty years in the making. Denmark’s commitment to wind power dates back to the 1970’s when the benefits were egregiously uneconomic. More than half of its energy is now from renewable sources. Ontario Teachers’ Pension Plan has evolved over thirty years since Lamoureux convinced Canada’s labor unions that the fund needs to attract and pay the best people from Goldman Sachs and Blackrock to work for them, rather than paying them fees.  Ontario Teachers’ has had an annualized total-return of 10% since reforms were made in 1990, and retirees’ pensions are fully funded with 100% inflation protection provided on all pensions.

It may be far-fetched to think that small, successful, experimental nations can fill this vacuum of leadership, but the world is begging for consistent leadership and a positive example, so an opportunity presents itself to step up.  

There is a good reason small countries tend to succeed in niche areas, and are often more successful than larger countries on specific metrics. They have to. Israel, South Korea or Switzerland have spent lifetimes grappling with the uncertainty of geopolitics. They understand the reality that if they don’t succeed on their own no one is going to help them.

Ireland is small rainy island on the tip of Europe, without a commitment to education and active courting of FDI, coupled with low corporate taxes and light regulation it would be a very dreary place indeed.

Sony executives have been deliberating over a price increase for some time, said people familiar with the discussions. A spokeswoman for Sony said the company is selling titles at launch for as little as $50 and the “biggest games" for $70. She said the higher price is “reflective of the growing development resources needed for these ambitious games.”

Game companies argue prices haven’t kept pace with the cost of other media like a movie ticket, Netflix or cable television, said Yoshio Osaki, the head of IDG Consulting Inc., which works with most major publishers. Since 2005, the cost to develop a game has tripled or quadrupled, he said.

“Not all publishers will launch next-gen games at $70,” Osaki wrote in an email. “However, we do anticipate that a growing percentage of games will launch at $70, but not all at once and not uniformly across every publisher or every game franchise.”

Capcom Co., the Japanese publisher of Resident Evil and Street Fighter, won’t release software for the new systems until next year. But like other companies, Capcom said it’s taking a “title-by-title” approach. “We believe game software’s price should be determined by how much money consumers are willing to pay for the quality, not by how much money we spend to make that game,” said Kenkichi Nomura, the chief financial officer.

This discussion of what the cost of computer game should be is missing a significant evolution of the market which has been going on for the last decade. Freemium is the biggest trend in the market where players have access to the game for free and pay of add-ons to speed up their progress or enhance the look of their online profile. 

Phase 2: things have to get worse before they get better, and this means there are aggressive policies to come (more so if Biden wins). This bodes well for a recovery that should further support a rotation towards cyclical themes as we enter 2021. This should favour equities, which could have more upside potential vs HY credit, which could be less appealing on a risk/return basis at current valuations. A rotation from super-high-growth stocks into more cyclical and quality value areas will likely materialise. Commodity-related trades could also benefit from this cyclical rebound. The availability of a vaccine would be part of this recovery: markets are pricing in availability in mid-2021 and then an economic reacceleration. Any delay could generate volatility, putting the virus cycle once again at the top of market concerns. Investors should look at opportunities from rotation, while also being mindful of possibly higher volatility. Bonds will be the key sentinels for the next phase. The market will likely start pricing in higher inflation and reflation, leading to the next sequence.

Phase 3: from improving to sustained growth. The next part of the sequence embeds a new round of policy mix and a slow exit from the extreme accommodation seen so far. The measures introduced to fight the pandemic will be very difficult to withdraw, and governments and CBs will probably have to do more. Fiscal and monetary policies will be even more intertwined, making the possibility of further debt monetisation to finance the recovery a likely scenario. Some EM with weak CB credibility could see inflation rise faster amid their recoveries which could trigger higher commodity prices. This might overheat the economy, ultimately leading to some inflation. This could de-anchor the system, which is based on the assumption of low rates forever, and real rates could become more volatile. This phase will be challenging for risk assets and could favour further rotation into equity value, commodities and real assets.

There is really one question to occupy the minds of investors. What is the Federal Reserve going to do about rising long bond yields? All other investment themes flow from the answer to that question.

“It is extremely difficult to project growth 15 years out and, although we view growth of 5%-6% over 2021-2025 as likely, growth above 5% over 2026-2035 appears quite challenging,” Nomura Holdings Inc. economists, led by Ting Lu, wrote in a note.

To overcome some of those challenges, the Communist Party is promising to build the nation into a technological powerhouse and focus on quality growth over speed. Key to that objective is developing a robust domestic market and becoming self-reliant in technology -- especially in chips, the building blocks for innovations from artificial intelligence to fifth-generation networking and autonomous vehicles.

The greater the size of the economy, more difficult it is to grow quickly. That is why standards of governance are so important. If graft and political ideology gets in the way of innovation and the pass-through effect to a greater wealth effect the headwinds to growth only growth stronger. China has demonstrated repeatedly that subservience to the party comes ahead of every other factor. That was particularly clear this week with the smack down of ANT Financial’s IPO.

The Brazilian real’s outperformance hints at investors’ pragmatic stance toward the currency, which may have further room to appreciate despite potential diplomatic frictions with a Biden White House.

BRL rose 3.2% over the last two sessions, by far the best performance among all major currencies. That may sound strange given Joe Biden’s comments on potential sanctions on the country due to deforestation and Brazilian President Jair Bolsonaro’s clear alliance with Trump, but traders are working with the information they have at hand now instead of making assumptions about what will happen in the future.

A Biden presidency improves chances of stimulus in the near future even with a GOP-controlled Senate. That has prompted bets that the dollar is prone to weaken and the currency that seems to have most room for a quick swing is the Brazilian real. The currency is the most depreciated major currency in the world this year, even after this week’s gains. Brazil faces fiscal pressure with debt-to-GDP ratio expected to rise beyond 100% this year, but the fundamental issues are local and not external. With more dollars available, the temptation to bet on the recovery of a country that has shown robust activity data is just too high.

Investors will keep a close eye on Brazil’s budget challenges and the government’s maneuvers to finance itself. Concern about Brazil’s relationship with U.S. under a potential Biden government may grow in relevance, but only in the middle of next year.

The determination of governments everywhere to spur reflation in 2021 is probably a more significant factor than geopolitics for most commodity producers. Australia’s brewing dispute with China is an obvious counter example, but even then, China still needs what Australia exports. Global infrastructure development is likely to play a vital role in the plans of most countries to boost employment and stimulate growth. That’s a major commodity demand growth trend which is taking place against a background of meagre investments in additional supply.  

The measures aim to counter the impact of a resurgent pandemic that has forced the government to order pubs, restaurants and non-essential shops to shut. With the outlook already clouded by the U.K.’s looming exit from the European Union’s single market -- potentially with no trade deal -- the nation risks a painful spike in joblessness.

Sunak told Parliament that the double injection of stimulus shows “all economic and monetary institutions are playing their part.” Governor Andrew Bailey said in a press conference that it is “important that we take prompt, strong and coordinated action.”

Spending on job support from November to March, along with an increase in help for self-employed workers, could cost around 25 billion pounds, Bloomberg Economics estimates.

If the government mandates a lockdown then some remedial action is necessary to blunt the economic hit to consumers and businesses. If the lockdowns and social media are abandoned then everything possible to reflate the economy will need to be done. Therefore, whichever way we look at it, the outlook is for more stimulus. The primary catalyst provided by the pandemic is to promote coordination between the monetary and fiscal authorities. It has ushered in modern monetary theory. 

As expected, the plenum declared that China had met the critical political goal of becoming a “moderately prosperous society” in 2020. By the end of the year, China’s GDP is expected to reach nearly 100 trillion yuan (RMB)—equivalent to $14.3 trillion—a figure higher than the plan’s forecast of RMB 92.7 trillion, which makes China’s economy in nominal terms about 66.7 percent the size of that of the United States in 2019 ($21.4 trillion), up from 40.6 percent the size of the United States in 2010. China reportedly lifted 55.75 million people out of poverty and created 60 million jobs in urban areas over the past half-decade. By the end of 2020, there will be basic medical insurance coverage for 1.3 billion and basic pension support for nearly 1 billion citizens.

Looking ahead, the plenum emphasized that the 14th Five-Year Plan will build on the 13th Five-Year Plan’s principles of innovation, regional coordination, green development, international openness, and social equity. That said, there was a distinct emphasis on strengthening the domestic economy. There was no mention of a growth rate target; instead, the country will focus on improving quality and raising productivity. The plan will highlight China’s need to gain technological independence; become a powerhouse in manufacturing, cyber, and the digital economy; and raise China’s international competitiveness. At the same time, China will need to expand domestic consumption as a share of the economy, which will be dependent on raising wages, building a more complete social safety net, and expanding economic opportunities in rural China.

The middle-income trap has been escaped by only a handful of countries. South Korea, Singapore and Taiwan spring to mind. They have mustered the wherewithal to evolve their governance structure to become more efficient and successfully transitioned to high-end manufacturing and services. Relatively small populations relative to the scale of their exports has been a significant aid in achieving those goals.

Last question: The election ends on Tuesday. National polling has consistently shown a substantial lead for Biden. What is your message to people who think that this thing is done?

Cahaly: I don’t think it’s done. Some of these national polls are not even taking into consideration the fact that Republicans have closed the gap with voter registrations. I don’t think they’re taking into account the number of low-propensity voters who are voting and who will vote on Election Day. I don’t think they’re measuring people’s genuine opinions. And I think [pollsters] are just not going to see it coming.

There’s a lot of hidden Trump votes out there. Will Biden win the popular vote? Probably. I’m not even debating that. But I think Trump is likely to have an Electoral College victory.

Kapteyn: I will be really surprised, given our own numbers, if there isn’t a very sizable gap between Biden and Trump in the popular vote—in favor of Biden. But in the states? I don’t know.

Cahaly: I like your skepticism.

There are going to be millions of people who vote for the first time in this election. That’s not just about Gen Z but it is also because people have more time. There are millions of people out of work and it’s an excuse to get out of the house or to spend half an hour filling in a form before mailing it. Turnout is likely to be the highest in decades. California alone could ensure Joe Biden wins a popular vote majority of 3 or 4 percent. Yet, the electoral college is likely to be a lot closer.

It seems to me that the above are going to be seen as super spreading events as we see day after day thousands of his followers in close proximity not wearing masks, blindly following his mantra that the disease is turning the corner. Supporting my argument is we know an important property of the virus is that it survives in the atmosphere much better at lower temperatures thus aiding the infectivity.

Thank you for this email which may be of interest to other subscribers. I found the point you made months ago about the tendency of stressed individuals to be more susceptible to infection to be particularly insightful.

General Electric shares jumped as much as 10% on Wednesday after the company’s third-quarter results
topped projections, earning the company plaudits from even the most bearish Wall Street analysts.

* Gordon Haskett analyst John Inch (hold) said GE’s EPS beat follows the pattern of mostly all other industrial companies that have beat bottom-line forecasts this earnings season

** Said overall, stronger healthcare and better free cash flow, despite still tough aviation business, “are likely to reinforce the messaging that GE has fundamentally bottomed – although the company will likely continue to face years ahead of difficult climb-back,” while Covid resurgence could arrest aviation fundamentals and future improvement in healthcare business

* JPMorgan analyst Stephen Tusa (neutral) said the across-the-board nature of the beat “is what it is, positive”

** The 4Q guide for free cash flow of over $2.5 billion suggests cash will be well ahead of JPM’s below-consensus expectations, and a “headline like that is tough to argue with”

* RBC analyst Deane Dray (outperform) said GE is still battling through a multiyear turnaround, worsened by the Covid-pandemic, but “there were encouraging signs” in the company’s EPS beat

** As is typical with a GE earnings, there are a number of moving parts involving charges/reserves, the analyst noted

** Said the most notable of those is the $100 million reserve taken for a potential settlement with the SEC for legacy accounting issues; however, since these issues date back to two CEOs ago, Dray expects investors would view it as a positive to see this issue resolved via a settlement

* GE 14 buys, 8 holds, 1 sell; avg PT $8.07: Bloomberg data

* NOTE: Earlier, GE Jumps on Surprise Profit as Culp Sees Faster Turnaround

The global economy is in a state of flux because no one can have an accurate reading what the future patterns of activity will be following the pandemic. The travel/hospitality sector obviously has a place in the economy but at what scale? The stay-at-home champions have seen a step change in demand growth for their products but how sustainable is that growth trajectory? For industrials is the economy going to bounce back on infrastructure development or be mired in political infighting?

Bitcoin surged to the highest level since July 2019 after PayPal Holdings Inc. announced it will allow
customers to use cryptocurrencies.

The largest digital coin increased as much as 4.9% to $12,488 Wednesday, surpassing the previous high for the year of $12,473 set in August. Gains among so-called alt coins were even larger, with Litecoin jumping more than 11% and Bitcoin Cash surging 8%.

PayPal customers can use select cryptocurrencies including Bitcoin, Ether, Bitcoin Cash and Litecoin on the platform. Mike Novogratz, who runs Galaxy Investment Partners, on Twitter called it “the biggest news of the year in crypto,” adding that banks will embark on a race to service digital currencies.

“We have crossed the rubicon,” he said. The news sparked an exuberant response from crypto fans who pointed to a string of recent announcements that suggest wider acceptance by old-school financial mainstays. Two public companies -- Square Inc. and MicroStrategy Inc. -- said recently that they invested in Bitcoin. And Fidelity Investments announced in August that it’s launching its first Bitcoin fund, adding its establishment name and star power to the often-maligned asset class.

The most recent bitcoin halvening was completed in May. That means the reward for solving the algorithm halved which doubled the difficulty of mining the next one. Since the genesis of the cryptocurrency, halvenings have resulted in investors appreciating the limited supply argument and the increasing difficult of creating new bitcoins as time progresses.

Airbnb is also a better value than hotels, offering more space but with less Covid (no check-in, elevators, or common areas) at a lower cost. A crisis is a terrible thing to waste, and Covid afforded the CEO the cloud cover to cut costs and refocus on the core business. In May Airbnb laid off a quarter of its staff (1,900 employees). CEO Chesky managed to pull a Bezos and was seen as a hero for his empathetic approach to layoffs (generous severance, extended healthcare, and a website of Airbnb employees who were laid off to help them find new leads). Firing people, sending out private pics — tomato/tomahto. Chesky and co-founders relinquished their salaries, cut pay in half for executives, and slashed nearly $1 billion in marketing expenses. The firm is in fighting shape.

The reduced cost structure and market recovery mean the path to profitability has become bigger, better lit, and shorter. There are rumors the firm will accelerate into/through profitability in 2021. The story here won’t be one of distant, but burgeoning, profits.

The story stock of 2020, where the narrative rode shotgun as the numbers sat quietly in the backseat, was Tesla. Airbnb will not electrify the world, but it will host it and reshape the resources required to let people tap into a basic instinct: to explore with others. What Airbnb lacks in story (unlikely Mr. Chesky can land two Brooklyn studio apartments on dual barges concurrently), it makes up in performance. There is no better vision than performance.

I had the pleasure of virtually attending a talk by Scott Galloway last week. He’s an engaging speaker and his topic at the time was how personal priorities shape purchasing decisions. He had a lot to say about equality of opportunity in college admissions. His main point was admissions, as they are currently structured in the USA, are tantamount to a caste system. I imagine his classes at NYU are well-attended.

The Emerging Market (EM) share of world output in the last 20 years doubled from 19% to 38% with the EM world growing at about double the rate of the Developed world (DM). This kept the total world growth at a 3-3.5% range over the last decade despite every region in the world growing a little slower than in the previous decade.

The implications of the swings in the global deflator and the FX on businesses and global incomes was much larger than most imagined which is visible in Fig 1 above. It breaks down the nominal world output and its components showing that the world in real terms grew at a pretty even rate of 3-3.5% through most of the last twenty years, with the swing in the ‘Deflator+FX component’ creating the big booms or bust feel in the world.

We are entering another such ‘Supercycle’ which was born about a quarter ago. Our definition of a supercycle is nominal World Output growing at 8-10% for a few years lifting most boats globally. Our view on the components of this global Supercycle are essentially building in a few key assumptions –

1. The World growth in real terms continues in the 3% +/- 1% range after normalizing to pre Covid levels in real terms by 2022. This is line with the IMF and many other estimates.

2. We expect the Global deflator to stay elevated in the 2-4% range for the next few years driven by stimulative fiscal and monetary policy by most large world economies. This would be aided by a weaker US$ and concurrent to it.

3. The US$ weakens 3-4% per annum for the next few years with rising deficits, with the Chinese Yuan doing the heavy lifting on the other side. The Yuan weakness in the previous few years had prevented this from playing out earlier. This paves the way for a strong Asian and EM FX basket which together account for about half of the world output. This is in a way similar to what happened in 2003-2005.

A link to the full note is posted in the Subscriber's Area.

Thanks for this interesting missive which may be of value to subscribers. Here is an additional note from the sender:

The AHA has estimated the pandemic will cost U.S. hospitals more than $323 billion through the end of this year. U.S. hospital revenue totaled about $1.1 trillion in 2018, according to the most recent AHA data available. The industry group is asking Congress for an additional $100 billion and full forgiveness of loans made under Medicare’s accelerated payment program, among other requests for relief.

As many as half of hospitals could be losing money by year end, Wesolowski said, citing a report it released in July from Kaufman, Hall and Associates. That’s up from about a third that were operating at a loss ahead of the pandemic.

More than three dozen hospitals have already entered bankruptcy this year, adding to a similar number last year, according to data compiled by Bloomberg. More than a dozen in rural areas have also shut their doors, according to the Cecil G. Sheps Center for Health Services Research at the University of North Carolina. The AHA put the total U.S. hospital count at 6,146 in its most recent report, a decrease of 64 from the previous year.

The financial pain has flowed through to Wall Street. Many of the hospitals that entered bankruptcy this year were part of Quorum Health Corp.’s Chapter 11 filing in April. Quorum’s 24 hospitals and other facilities struggled under the demands of treating coronavirus patients. In late June, a judge approved the company’s exit plan, which wiped out shareholders and handed the chain to creditors.

Hospitals are on the frontline of dealing with the pandemic but also suffer from the less remarked upon consequences of damaging consumer confidence. People have simply stopped going to the doctor.

“I can’t say as we stand here that we’ll necessarily get a deal -- we have prospects of a deal,” Barnier told reporters after meeting with EU leaders, adding that, as far as he’s concerned, talks will continue in London next week and Brussels the week after. “We shall remain available until the last possible day -- the negotiations aren’t over.”

While the U.K. thinks it has gone as far as it can, and wants the EU to compromise, leaders from the bloc insisted that the onus is on the British government. It wants the U.K. to make concessions on state aid, limiting the subsidies government can hand out to businesses, before it contemplates its own compromises on fishing.

European officials brushed off Frost’s complaints and insisted they won’t persuade the bloc to shift its stance, and several voiced irritation, asking not to be identified because of the sensitivity of the negotiations. Two said they judged the comments were aimed at Frost’s domestic audience and two others said they might serve to harden the EU’s position.

It might be nice to think that the Brexit story is about the triumph of freedom and national sovereignty over an overbearing increasingly federalist bureaucracy. However, the exit negotiations are much more about money and what competition will look like afterwards. The big question is not about fishing rights, financial services or customs borders. Instead, the primary sticking points are what modes of competition the UK is willing to give up in order to retain unfettered access to the EU’s market.

As per JPM and Nomura   the mkt is pricing a Biden win, caution that a blue wave is necessary, otherwise will get gridlock.

Even if it happens probably get turmoil specially if we do not get clean sweep. Otherwise legal problems will be forthcoming. The groups would be HC, alternative energies, cyclical, education, infrastructure. Also China as frictions will be reduced

Can you identify possible winners, using the charts and share them?

Trust you and your family are well. Stay safe.

The narrative about who will win the US Presidential election has morphed over the last couple of weeks to pricing in a Biden victory. The catalyst for this change was the debate where the two candidates harangued each other and dropped the bar for political decorum another notch lower. Since then, confidence among Democrats has increased substantially. There has been talk of a double-digit margin of victory and a blue wave where they control both legislative branches and the Presidency.

I hope you and the family are well. well done on your XXX trade. What would you do now if you are not in the shares? and why are the shares up 25 per cent today? Is that shorts closing out their positions, realisation that the company will not go bust or just volatility associated with the rights issue? Many thanks

Thank you for this question which may be of interest to other subscribers. I agree the most likely reason for today’s significant additional surge today was because of short covering. It’s up almost 100% this week so buying the rebound requires one to have some tolerance of volatility. The only way to deal with that and not lose sleep is to control the size of the position.

“The glass half-full view of stimulus talks is if you don’t get it today you’ll get it tomorrow from whomever wins the election,” Sheets said in an interview. “This V-shaped recovery is still intact.”

His conviction that growth will continue unabated is in contrast with other strategists who say the U.S. is facing a multitude of risks. Lawmakers have been deadlocked for weeks on the details of a stimulus package and President Donald Trump surprised allies with a unilateral call on Tuesday to halt talks on a deal.

Sheets’s recommendations are mirrored in hedge funds positioned ever more aggressively for a steeper U.S. yield curve, often seen as a bet on reflation. The latest data shows speculative net short positions in long bond futures have hit a record, while net long positions on 10-year Treasuries have climbed to their highest since October 2017.

Brinksmanship does not mean an agreement will fail to be reached. Regardless of which way the US election goes, the next administration has an interest in continuing to support the recovery. Fiscal stimulus will be a big part of that.

A link to the full report is posted in the Subscriber's Area. 

The fourth quarter is going to bring two strong sales events for Amazon. Prime Day usually occurs in July but was delayed because of the pandemic. It will now take place on the 13th. That might just kick off the beginning of the holiday season. Considering the extent of excess savings this year is likely to deliver a bumper holiday season for Amazon’s retail operation.

Hi Eoin, could you please state what your APPROXIMATE price objective is for XXX to know whether you see this more as an opportunistic trade or more of fundamental return to e.g., the 200dma? Thank you

Thank you for this question. I view my trades as opportunistic and my investments as holdings in a long-term portfolio. 

Alibaba Group Holding Ltd. agreed to buy as much as a 9.99% stake in Dufry AG, giving the Swiss duty-free giant a lifeline as the pandemic hammers the business.

Dufry said Monday it’s proposing a capital increase that will raise up to 700 million Swiss francs ($763 million), and Alibaba will participate. Advent International Corp., a private equity company, also plans to invest as much as 455 million francs. Dufry shares surged as much as 16%.

The Swiss company said the proceeds from the share sale will help it buy out its Hudson Ltd. U.S. unit, as previously announced.

The capital increase will bolster the company, whose market value has dropped to 1.6 billion francs as the shares trade near the lowest in a decade. The companies are also forming a joint venture in China that will combine Alibaba’s digital capabilities and network with Dufry’s travel retail business in that market.

The absence of airline traffic gutted Dufry’s business model. That’s a condition which has been shared by every business leveraged to travel and tourism. The big question is how long air travel will take to recover. I remain of the opinion we are close to the peak of coronavirus hysteria. That suggests it can only get better from here.

That completes the good news. The bad news is that TDFs have become so big that, like whales splashing around in the bathtub, they are affecting markets. Deluard points to the weird
coincidence that each of the last four corrections (including the massive Covid-19 market break earlier this year) bottomed with a week to go in the quarter. All but one were even on the same day of the month — the 23rd. The exception was the Christmas Eve climax to the sell-off of winter 2018, which came after the 23rd had fallen on a Sunday. Here they are:

This could be a weird coincidence. It could be an example of the power of numerology. And it could be the basis of a very specific new market aphorism. Rather than “Sell in May and go away,” we can have “Buy on the 23rd of March, June, September or December.” Most usefully, however, we might look at it as an example of the newly minted power of the TDF whales. If the market is going down, these days it is a safe bet that a big infusion of money into stocks will be coming at the end of a quarter. TDFs’ contra-cyclicality means that they act as an accidental “put” option under the market. 
 

Seasonality in the market is an important factor because there is a clear trend for the market to do better at certain times of the year. Sell in May and come back on Labor/St. Leger’s Day has long highlighted the tendency of markets to do best in the 4th and 1st quarters. The Santa Claus rally between Thanksgiving in late November and the first week of the new year has also statistically returned positive results, albeit with some volatility.

Hello Eoin 1.) domiciled in Switzerland I wonder what is your opinion on the SMI? 2.) watching the presidential debate, I am impressed by Biden’s face lifting - would you know or could you find out which doctor did this great job?

Thank you for this question which may be of interest to subscribers. Politics is a visual profession and looking good on TV has been important since the days of JFK. Whoever is looking after the appearance of the septuagenarians running for US President deserves every penny they are earning. I'll keep my ear to ground for who that is. 

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change.

As far as a big hot war between the United States and China is concerned, it would include all the previously mentioned types of wars plus more pursued at their maximums because, in a fight for survival, each would throw all they have at the other, the way other countries in history have, so it would be World War III, and World War III would likely be much more deadly than World War II, which was much more deadly than World War I because of the technological advances that have been made in the ways we can hurt each other.  

In thinking about the timing of a war, I keep in mind the principle that when countries have big internal disorder, it is an opportune moment for opposing countries to aggressively exploit their vulnerabilities.  For example, the Japanese made their moves to take control of European colonies in Southeast Asia in the 1930s when the European countries were challenged by their depressions and their conflicts.  History has also taught us that when there are leadership transitions and/or weak leadership, at the same time that there is big internal conflict, the risk of the enemy making an offensive move should be considered elevated.  For example, those conditions could exist in the upcoming US presidential election.  However, because time is on China’s side (because of the trends of improvements and weakenings shown in prior charts), if there is to be a war, it is in the interest of the Chinese to have it later (e.g., 5-10 years from now when it will likely be more self-sufficient and stronger) and in the interest of the US to have it sooner.   

I’m now going to add two other types of war—1) the culture war, which will drive how each side will approach these circumstances, including what they would rather die for than give up, and 2) the war with ourselves, which will determine how effective we are, which will lead us to be strong or weak in the critical ways that we previously explored. 

Governance is Everything has been a mantra at this service for decades. It is becoming increasingly relevant because standards of governance are in flux all over the world. Governance is never static, it’s the relative trend that determines the risk factor for investors. 

“We are ready for a negotiation,” she said. “I am talking with my caucus and my leadership and we will see what we are going to do,” Pelosi said.

The prospect of talks helped push stocks higher briefly, with the S&P 500 extending gains after the Pelosi and Mnuchin remarks. But that optimism was tempered by reports showing a resurgence in coronavirus cases in Europe and investors pulled stocks back off session highs.

The risk of a slowdown in the recovery is rising with the lack of movement on fiscal stimulus. Initial claims for unemployment insurance remained at a level above the peak during the Great Recession of 2007-09, the latest weekly data showed on Thursday.

Fed Chair Jerome Powell reiterated his conclusion that “it’s likely that additional fiscal support will be needed,” speaking at the same Senate panel where Mnuchin was testifying.

The recovery has been faster than anticipated so far, Powell said, thanks to income support to those affected by the pandemic.

“The risk is that they’ll go through that money, ultimately, and have to cut back on spending and maybe lose their home,” the Fed chief said. “That’s the downside risk of no further action.”

The big question for investors is to determine how credible this news story is. The Fed has been very clear that it sees a need for additional stimulus and that the path out of the recession is dependent on support mechanisms remaining open ended.

I may be mistaken but I thought in one of your commentaries you listed some betting stocks.

Assuming the continue pandemic mode, sport fans may be eager to bet, same for the elections, Point bets PBH .au and Penn gaming PENN may be good idea.

DraftKings is the name that has been recognized DNKG

 Pls. confirm you had mentioned in one of your commentaries, alternatively, any ideas / opinion on the space

Best keep safe

Thank you for this question. I have spoken about the airline and tourist sectors generally but not about pure gambling plays. However, I agree that speculative fervour is a significant factor in the market today. The lack of sports events to bet on has been a factor in the surge in online stock market trading among retail investors. The buzz people get from punting is addictive so demand will likely persist for at least as long as their money lasts. The online venues are likely to benefit at the expense of physical locations.

Hi Eoin - hope you are keeping safe & well. It is sad to see the fires causing so much devastation in your state once again, and you are also dealing with the "new norm" and the unsettling Covid world. With this in mind your readers may find this article of interest. Stay safe 

Thank you for your well wishes. The headlines about California are terrifying and I can see why people question the decision to live here. The place is either jammed with cars, choking on smog, shaking with earthquakes, burning to the ground or dying en masse from the coronavirus. On top of that the occasional surfer is munched on by a Great White Shark and we are all about to be inundated with rising sea levels.  

Any loss of life is a tragedy and I know this is not going to sound politically correct but we’re fine. We knew the shelter in place orders were coming so we stocked up early. As soon as the tennis courts opened up, we started playing again. Over the course of the last few months my resting heart rate has fallen to 43 and I’m fitter than I have been in years.

Eating lots of fruit and veg, drinking plenty of water, getting enough sleep, moderating one’s consumption of alcohol and practicing as much physical activity as you can, without injuring yourself, should be everyone’s prescription for life. The fact it helps keep illness at bay is a bonus.

Dear Eoin, I suppose you are doing well since I’ve been following your research through all these months. Pandemic changed a lot of things, but we had the crisis of our own. We built the leading Russian business daily but this year, after more than 20 years of our efforts, it was effectively taken from us through machinations brought about by forces close to Kremlin. You can have a look, this is the early July statement by Reporters Without Borders 

By now, almost all members of the newsroom have left, Vedomosti degraded very quickly and stopped being independent, honest and objective. But a group of journalists and editors including myself have launched the new online publication VTimes - https://vtimes.io . The full-fledged launch including new web-site is scheduled for October but we’ve been active with our articles and podcasts on social platforms, such as Telegram, Facebook etc., since August and feel tremendous support from readers many of whom switched from Vedomosti to VTimes. Last week we began crowdfunding campaign that can be supported from anywhere. I have already used your most valuable comments in my stories for VTimes and will continue to do so.

I am writing now about rather quick rebound of the global trade. In particular, according to calculations by the Kiel Institute for the World Economy, the trade volumes recovered about half of this year’s historic loss in four months while it took 13 months after 2008 crisis had begun. Some other information on the issue can be found in the WSJ story - 

And major exporters of goods, such as China, Korea, Germany, now recover quicker than economies more depending on services. You several times wrote about US-China trade from your personal point of view, or rather your wife’s business. I also remember you describing situation in Los Angeles port. Can you tell, what is the situation now, for me to get first-hand experience?

Thank you for this update and please accept my condolences in seeing your work disappear into the hands of an interloper. I also wish you the best of luck with your new venture. Journalistic independence is under threat all over the world, not just in Russia. The price for holding a contrary opinion is rising all the time. That’s a clear sign of deteriorating standards of governance globally which suggests the risk premium is rising.

A link to the full report is posted in the Subscriber's Area. 

The death of Justice Ruth Bader Ginsburg has injected an additional element of contention into the US Presidential Election competition. It therefore further reduces the potential for an additional stimulus in the short term. Meanwhile, central banks have appeared reticent to boost liquidity. The partial rebound in economic activity has improved the velocity of money reading but it is raw liquidity measures that stoke leveraged bets.

BuzzFeed also reported that a team from Deutsche Bank’s audit division conducted a review of the Moscow operation in 2014 and gave the office a “green” rating. Christian Sewing, now the bank’s chief executive officer, was global head of audit at the time, though he had no “direct or indirect involvement” in that probe, a Deutsche Bank spokesperson told BuzzFeed.

Sewing oversaw an internal investigation of the mirror trades the following year, which led to the lender shuttering its securities unit in the country. Achleitner appointed him CEO three years later.

BuzzFeed wrote that the volume of Russian money flowing into the U.S. financial system was so big that a team of experts at Bank of America raised the issue at a meeting with Deutsche Bank in London in early 2016. The issue was eventually escalated within Bank of America and one of its senior managers raised the issue with Achleitner himself. Bank of America in February of that year filed a suspicious activity report with the U.S. Treasury Department.

Deutsche Bank in a statement cast doubt over some element of that report, saying in Germany’s two-tier board system, it wouldn’t have been the role of the supervisory board chairman to get involved in the matter. Instead, it was the chairman of the management board -- John Cryan at the time -- who had a meeting with a Bank of America executive.

There is a lot of money to be made in laundering money and there is a lot of money to be laundered. That pretty much ensures it is going to be a pervasive practice across the global financial system. In many respects it is akin to the drug trade. No matter how much money is spent on stamping it out, it always finds a way through.

Hancock said the country faces a “big moment” but emphasized a second lockdown “is not the proposal that’s on the table.” Asked if scientists are saying schools and business don’t need to be closed, he replied: “that’s right.”

“The strategy is to keep the virus down as much as is possible, whilst protecting education and the economy and doing everything we possibly can for the cavalry that’s on the horizon,” he said, referring to efforts to develop Covid-19 vaccines, new testing technologies and treatments.

Much is riding on the government’s test-and-trace program, which officials regard as vital to keep infection rates down and to give people confidence to return to work. But the system is failing to meet key targets, including on the rapid turnaround of tests and the number of people deemed at risk of contracting the virus who are contacted.

The rising number of cases is a concern. However, it has not transferred into a higher death rate. Some would argue that a rising death toll is inevitable but that is not necessarily the case.

You can’t die twice. Many of the deaths were among the most susceptible groups. Lessons have finally been learned. Older, sicker people are now better protected. At the same time methods for treating the virus have improved. The situation today is not comparable to what prevailed in February.

“It’s really a unique mechanism for investors themselves and California to be able to at the very least understand and price the risk and potentially hedge the risk of water price volatility,” said Carter Malloy, founder and chief executive officer of AcreTrader, a farmland investing platform.

“The crucial thing is right now we have very little visibility” on what water prices will look like in the future, he said.

Water preservation and distribution could become increasingly attractive as investors like Jeff Ubben, who recently launched Inclusive Capital Partners, look to tackle problems ranging from environmental damage to food scarcity through their funds.

Climate advocates have warned in recent years for the potential of water wars as competition increases between needs from agriculture, energy and growing cities. Food production in particular could be vulnerable as drought makes it increasingly difficult to grow crops in many parts of the world and farmers balance water and land needs with protecting forest in places like Brazil’s Amazon.

“Food is going to be a flash point” in the world going forward as climate change makes production more challenging, Carter Roberts, chief executive officer of World Wildlife Fund, said in an interview at the Bloomberg Green Festival this week.

A couple of the other directors at the Nevada Trust Company sit on the board of Ducks Unlimited. It’s a conservancy group run by hunters and aims to protect as much wetland habitat has possible. Water rights and abeyance agreements are the bread and butter of the organisation.

The data’s strength was surprising because the period spanned Melbourne’s shift to Stage 4 restrictions and a curfew to contain a rapidly spreading outbreak, as well as nervousness in neighboring New South Wales that it was headed down the same path. The labor market’s ability to absorb this weakness and maintain its recovery is testament to the government’s signature JobKeeper employment subsidy -- that will extend into 2021 -- and central bank stimulus.

Self-employed workers drove the monthly jobs increase. As part-time jobs returned at twice the pace of full-time, the ubiquitous food delivery services, with its riders pedaling the streets of Australia’s cities, are expected to be responsible for much of this rise.

“The upshot is that the unemployment rate is now unlikely to climb to 8.5% over the coming months as we had anticipated, let alone the 10% predicted by the RBA and the Treasury,” said Marcel Thieliant, senior economist for Australia at Capital Economics. “Indeed, with restrictions in Victoria set to be loosened toward year-end, employment should continue to rise.”

The Reserve Bank of Australia, which has kept its benchmark interest rate near zero since March, when it began buying government bonds to ensure the yield on three-year remained around 0.25%, had predicted the jobless rate would climb to around 10% later this year.

Australia has successfully contained the coronavirus outbreak in Melbourne but the whole economy benefits from the monetary and fiscal stimulus to aid Victoria. With the RBA’s cash target rate at 0.25% Australia’s higher growth sectors that can benefit from access to abundant liquidity should continue to prosper.

Key markets are stabilizing and GE is making “good progress” in cutting costs by $2 billion and saving $3 billion in cash to contend with the coronavirus pandemic, Culp said. While the recovery will be gradual, results are improving and GE is poised for continued cash-flow gains through the end of the year, he
said.

“I sit here today feeling very confident about where we are and where we’re going despite all of the trials and tribulations that Covid has certainly thrown at us,” Culp said at a Morgan Stanley conference Wednesday.

The CEO’s optimistic tone marks a turnabout from late July, when he stopped short of saying GE would generate free cash flow in the second half. The pandemic has prompted an unprecedented collapse in air travel, gutting demand for the company’s jet engines and crimping sales of other products such as gas turbines and medical equipment.

Manufacturers of big pieces of equipment that require teams of people to operate were hit hard by COVID-19. However, a number had been trending lower for a long time before pandemic hit and rationalisation plans were already well underway. There is no doubt that the ill effects of the lockdown are non-trivial but valuations are much improved and a return to profitability is likely to be rewarded by investors.

“The PBOC is sending a signal that it will not tighten monetary policy quickly, but also it’s less likely to use broad easing measures such as a reserve ratio cut,” said Xia Le, chief economist at PingAn Digital Economic Research Center. “This will benefit government bonds in the short term. But in the longer run, the performance of the debt is more dependent on China’s economy and the U.S. election.”

The yield on 10-year government bonds dropped 4 basis points to 3.11% as of 4:15 p.m. in Shanghai. The yuan last traded at 6.7815.

The PBOC offered 600 billion yuan ($88.1 billion) of one-year funding with the medium-term lending facility, according to a statement. That will more than offset the 200 billion yuan in loans that come due on Thursday, implying a net injection of 400 billion yuan, the largest monthly addition since July 2018. It kept the interest rate on the funds unchanged at 2.95%.

Chinese lenders -- the main buyers of government debt -- are compelled to buy 1.13 trillion yuan of new debt this month and repay 1.7 trillion yuan of short-term interbank debt. Financial institutions are also hoarding funds for quarter-end regulatory checks. Adding to the liquidity strain is the authorities’ crackdown on high-yielding financial products, which has limited their ability to attract deposits.
 

Chinese stimulus has taken a slightly different path to that followed by the Fed or ECB but it is certainly present. China’s steel and aluminium production are hitting new highs and Chinese demand for copper is the primary factor behind recent strong pricing. The clear message here is that China is pulling on the traditional levers for growth which is spurring infrastructure and industrial development. They clearly intend to come out of the pandemic in a stronger position than before they went in.

A link to the full report is posted in the Subscriber's Area. 

Media commentary continues to focus on the number of new cases of COVID-19 but that is an irrelevant figure. The numbers of hospitalisations and deaths and the fear that healthcare systems would be overrun was the reason for locking down economies. The reality today is even in countries where the number of cases is increasing, the hospitalization rate has not increased because most newly infected people are younger. Obviously, there are risks that younger people will infect older people but that is a manageable risk compared to the financial stress of total cessation of economic activity.

Known for their love of risk, individual investors appear to be changing the contours of South Korea’s broader market. They are the force behind the benchmark Kospi index’s 64% rebound from its March low -- the strongest performance in Asia in that period -- having bought a net 25.6 trillion won ($21.6
billion) worth of stocks since then even as foreign funds and institutional investors sold. In the U.S., the Robinhood craze means that retail investors now account for roughly 20% of equity trading, up from 15% historically, according to Bloomberg Intelligence analysis.

“Retail investors appear to be seeking short-term profits after hearing their next-door neighbors earned lots of money from stocks after the March selloff,” said You Seung-Min, chief strategist at Samsung Securities Co.

The activity of Korean short-term traders in September hasn’t been limited to typical darlings like preferred stocks or shares of healthcare firms. They have also dominated trading in blue-chip companies like Samsung Electronic Co., about 81% of value traded this month through Sept. 8, and SK Hynix Inc.,
almost 76%.

“Unlike previously, they are trading large-cap stocks as well because they believe some large-size firms may be able to make a huge profit amid the spread of the Covid-19,” You said.

The South Korea and Taiwanese markets are heavily oriented towards technology companies which has made them a natural destination for traders playing the stay-at-home momentum trade. South Korean retail traders were also highly active in the cryptocurrency markets in 2017. That experience may have emboldened them to be more aggressive in pursuing gains during this momentum move.

The EU may have a case to seek legal remedies under the Brexit Withdrawal Agreement even before controversial provisions in the U.K. internal-market bill are passed by Parliament, and would have a clear justification once the bill becomes law, according to the bloc’s preliminary analysis of the U.K. legislation.

Johnson is facing a backlash from the EU and from within his own ruling Conservative Party after his government said it is ready to break its commitments to the EU over the Irish border. With negotiations over a trade deal already deadlocked over state aid rules and fishing quotas, the controversy is fueling concern there may be no agreement by the year-end deadline, triggering tariffs between the U.K. and the world’s biggest single market.

“A no-deal is becoming more likely every day,” Manfred Weber, head of the main center-right group in the European Parliament, said Thursday in an interview with Germany’s DLF radio. “We have the feeling that Britain wants a hard Brexit for ideological reasons and as Europeans we need to prepare for the worst.”

There are three treaties or laws that are now in question and the UK looks like it is going to have to break one. The Act of Union created the UK. The Good Friday Agreement settled the Northern Ireland question and the Brexit agreement created a framework for the UK to trade with the EU post Brexit.

A link to the full report is posted in the Subscriber's Area. 

One of the greatest advantages emerging markets have over developed markets is they get to skip stages of development. The rollout of remote working, more online services like shopping, entertainment and relocating business activities to the cloud is likely to have a much bigger impact on growth in developing countries because the leap in productivity gained is so much greater. That is likely to set up continued outsized growth for years to come.

 

The prime minister could walk away this year and seek to re-open negotiations at a later date. “Our door will never be closed,” Johnson said. “We will of, course, always be ready to talk to our EU friends even in these circumstances.”

Crucially, though, Johnson is a politician who has shown himself to be flexible and often keeps people guessing until the last moment. He says he wants a deal. His officials insist he does, too, and there are still almost four months to go before the real deadline at the end of the year.

The leak of government plans to dilute parts of the Brexit withdrawal agreement sparked muted warnings from Brussels on Monday and private dismay from EU officials. There cannot be a trade deal if Johnson breaks his promises on the earlier divorce accord, the EU said.

In London, the premier’s team worked to contain the damage and play down any threat to the carefully crafted exit agreement.

After all, Johnson is a politician who loves to be loved. During a summer in which public pressure forced him to reverse plans repeatedly -- on issues including exam grading, wearing face masks, and local lockdowns -- Johnson has shown how much he cares about staying popular.

Opinion polls are studied closely in his Downing Street office. Currently they show only limited backing for leaving without a deal. Only a quarter of voters think that would be, as Johnson says, a “good outcome,” according to YouGov. Half say such a result would be “bad” or “very bad.”

How that sentiment shifts, or not, over the next four months may give the strongest clue to whether Johnson will change his mind.

It is very likely that the ambition of having an agreement in place by October was overly optimistic. As with most things in the EU, the negotiations are likely to come down to the wire in late December. Boris Johnson understands that you have to willing to walk away if you are to have any negotiating leverage. Holding out the prospect that the UK is willing to renege on treaties is part of the wider tapestry of brinksmanship.

Demand was strong enough to push rates up, even with cancelled sailings restored and carriers adding temporary and even new permanent services on the lane,” said Freightos CMO Eytan Buchman.

“With reports of rolled shipments and container shortages out of China indicating the extent of the demand rush, carriers will likely introduce another China-US GRI for September, which would be the sixth in just three months,” said Mr Buchman.

In his weekly US import update report, Jon Monroe, president of Jon Monroe Consulting and a representative for Worldwide Logistics, said the big US retailers were “experiencing a major surge in online orders”, and were converting many of their stores to fulfilment centres.

He said, however, that the substantial freight price hikes were taking their toll.

“Importers’ budgets are ballooning and, in some cases, about to explode from having to pay the extremely high cost of transport,” said Mr Monroe. “The record high rates will undoubtedly cause bankruptcies in the worst case, and major budget excesses in the best case, scenarios,” he warned.

There a couple of complimentary trends that have resulted in a significant bump in container shipping rates over the last month. The first is the surge in demand for new furniture as people flee the confined environment of the city for the space of the suburbs. Bigger houses need more tables, chairs, sofas, desks and TVs. These are bulky items so demand for 40ft containers has surged.

Shipping inventory has also declined because of the cost of compliance with IMO2020 regulations. The hit to demand during the lockdowns was likely a significant negative catalyst for what was already a highly pressured sector.

Traders across major asset classes are sending the same message: Prepare for what could be the most-contentious U.S. presidential elections in decades.

One measure of hedging in the stock market is higher than at any point in the past three presidential elections. In the interest-rates market, implied volatility is well above levels reached in 2016 or 2012. And three-month implied volatility in the dollar-yen pair -- a classic haven trade -- has risen above the two-month tenor by the most in two decades, signaling demand for protection from turbulence near Election Day.

Trades protecting against election-induced volatility have been around all year, with “unprecedented” levels of hedging seen as early as January. Yet the potential for drama has only grown since then as the coronavirus leaves the U.S. mired in a recession and President Donald Trump rages against mail-in voting, raising concerns about a prolonged dispute over vote tallies. That uncertainty is complicating more conventional topics, such as how the results will affect tax policy and the trade war with China.

“You have a global pandemic as your backdrop, which speaks for itself, and then you have a president that’s in a term, volatile, and you have the things going on with the Postal Service,” said Zachary Griffiths, a rates strategist at Wells Fargo. “All these factors that don’t typically play into an election are impacting things now and that’s clearly got people concerned. And vol has bid up tremendously in rates and equities.”

Veteran election watchers will remember the hanging chads of 2000 which were key to deciding the outcome of the Florida count and the US election. George W. Bush’s victory came down to 500 votes and it was possibly helpful that his brother was the state’s governor.

It is looking likely that a large number of people are preparing to vote by mail in 2020. The US Postal Service is in no way prepared to handle that volume of mail. Right now, they are short staffed. Whether that is through absenteeism or not, there are already long lines at post offices.

The EC’s paradigm shift

By becoming the borrower through its issuance of €750 billion of debt, the EC sets a new precedent while becoming a major new force in the sovereign debt markets. It is also expected to demonstrate maximum flexibility in managing its debt to achieve the most favorable terms for the member states. The bonds are expected to be repaid through the EU budget through the end of 2058. New tax revenues have been proposed, such as a plastic levy, a digital tax, and a review of the EU Emissions Trading System.  

The recovery plan marks a significant moment in which EU Leaders recognized the need to create a new structure for raising funds under the auspices of the EC and funded by the EU budget. This structure has a strong likelihood of becoming a permanent funding mechanism at the EU level for emergency programs and other funding needs for the fiscally weak member states. They have also acted swiftly to stem the risks to the eurozone’s stability from alarmingly high fiscal deficits, and to front-load the raising of funds in order to plug the enormous fiscal gaps into the future. They have recognized the need to move away from the failed austerity approach of the past and to adopt a pro-growth policy through grants and loans on attractive terms with light conditionality – a major departure from the past.

‘Hamilton light’ plan is an auspicious beginning

The recovery plan could well become a permanent feature for the EU, serving to underpin the debt issued by the periphery member states. This has enormous significance for the EU banking industry, which has become reliant on the ECB’s QE programs for its stability and capital adequacy. If the fear of default is truly removed for any eurozone sovereign debt, without assuming intervention by the ECB, there could be broader implications for financial system integration within Europe, with cross-border mergers and acquisitions within the EU finally taking place. This is sorely needed to drive greater scale in a banking system that has poor profitability compared to that of the US.

The recovery fund may not be quite as far-reaching as Alexander Hamilton’s re-ordering of the financial system in the newly born United States. However, the progress made by EU leaders this summer points to a measured yet pivotal step toward very similar ends. 

Europe has just created Federal bonds which will be repaid from the bloc’s budget. New taxes are being proposed to increase the size of the budget and there are aspirations for the system to become permanent.

In his speech, Barnier also hinted that negotiations over the EU and U.K.’s future relationship may stretch beyond a meeting of the bloc’s leaders scheduled for mid-October as the two sides struggle to reach an agreement.

“If we want to ensure the ratification of this new treaty at the end of the year, we need an agreement around Oct. 31,” Barnier said. “The clock is ticking.”

Brexit appears to have lost its ability to move markets. Perhaps investors have made their peace with the idea that the UK will leave the EU without a trade deal. It’s more likely that investors have concluded the border with the EU will be down the middle of the Irish Sea rather on the island of Ireland. In other words that a deal is inevitable.

The top three holdings of the machine-guided fund in July were Amazon.com Inc., Alphabet Inc. and Facebook Inc. Those are far from the kind of undervalued stocks typically favored by a value strategy. But to Qraft, it’s just value 2.0.

“Intangible assets have become a more important factor in the actual value of the company due to the development of information technology,” founder Hyungsik Kim wrote in an email.

“It is easy to tell which of the following is more important in measuring the value of Amazon: warehouses (tangibles) or automated logistics systems (intangibles).”

It’s the rallying cry for many remaining proponents of value: The factor isn’t dead, it’s simply plagued by outdated accounting rules that treat intangible investments such as research as expenses rather than capital.

As a result, knowledge-intensive firms end up with much lower book values and higher costs, which make them look more expensive than they actually are.

The new ETF’s eye-catching backtests also speak to the variety of methods underlying even the best-known equity factors. One study estimated there are well over 3,000 different ways to define a value strategy.

Intangible values is a fascinating subject because it forms the basis for the investing in technology firms but is the reason to avoid legacy firms. The challenge in teaching an algorithm to know the difference means a great deal of labeling would be required to identify the differences.

UK National debt hits £2 trillion. As in astronomy, it is difficult to get one’s head around the numbers A financial journalist put this into some perspective this morning. Someone living in ancient Egypt at the time of the great pyramid spending a million pounds a day over the next 3000 years would still have money to spare today!

Thank you for this comparison. It is also a £30,000 ($39,240) debt for every one of the UK’s 66.5 million people. By comparison the debt per capita of the US is now $80,000 per person. As with so many items, the absolute level is often less important than the trend.

Lyft and Uber shares erased earlier losses to jump higher after the companies were spared from having to rapidly convert their California drivers to employees by a state appeals court

Shares of both companies had dropped earlier after Lyft said it will suspend its rideshare operation in California at 11:59 p.m. Pacific time today

“We don’t want to suspend operations. We are going to keep up the fight for a benefits model that works for all drivers and our riders,” Lyft said in statement

Lyft shares rose as much as 8.7%, Uber gained 7.8%

NOTE: Earlier, Former Uber Security Chief Charged With Obstruction of Justice

Tax codes generally favour business owners. It is in the public good to foster business creation because that improves the potential for new jobs to be created by entrepreneurs. The sole proprietor gains many of the benefits of business tax treatment, but also gives up the safety net provided by companies in the form of benefits. They lose access to unemployment benefits and the old age pension/social security benefits are also not as generous. In return sole proprietors generally pay less city, state and federal taxes than corporations do.

I am a pre-subscriber (financial constraints, exacerbated since Covid-19, make it impossible for me to become a full subscriber, I'm afraid, so I may not qualify for a reply. But David did reply to me on more than one occasion;  he was always so kind, and is greatly missed).

I remember your being on the panel at a money show in the conference centre in Westminster Square (I forget the name - possible Westminster Conference Centre) - it must have been about 2009 because I remember asking a question as to whether there were any "good" banks left that might be worth investing in.
  
Anyhow, in response to a question from another attendee about companies drilling for water in Australia, (or possibly into wind power or solar or even lithium miners (if it wasn't too early) - I forget exactly which), I remember you replying that you never favoured chasing these early-stage stories, and in general you have been proved right since.   

I still tend to class hydrogen fuel and battery power for vehicles in the same category, but perhaps you feel that times have changed sufficiently now?    Since I am only a pre-subscriber, and not able to read the full article, I appreciate that you may have said more on this there, or in previous Comments of the Day.
    
It seems to me that since hydrogen when mixed with oxygen is a very explosive mix (although this could also be said to a lesser extent of petrol vapour, I suppose), it would only take one careless mistake or faulty construction to cause a serious explosion.   But perhaps the design features are so tight that this would be impossible.   

At least I would trust an electric vehicle more than a self-driving one! In fact, I am a bit nervous by nature. I would never trust a Toyota now, after that stuck accelerator pedal caused a fatality. What the last minutes of those poor occupants were like I cannot face thinking about.

Whether it is possible to reply to this or not, many thanks Eoin for the comments that I am able to read daily. They give a very sane and reassuring perspective, especially in these difficult times.

David always saw value in conducting a public discourse with subscribers because it helped to educate us as much as the Collective. It also ensures we are covering topics of interest. I agree and one of the things I enjoy most is attempting to provide satisfactory answers to subscriber’ queries. However, as someone who has been familiar with the Service for at least 11 years, might I suggest you at least take a trial subscription?

If that is too much of a financial constraint it may be time to reassess your investment/trading ambitions. Investing involves a degree of risk. If you are uncomfortable with driving a Prius because of a fault corrected more than a decade ago, it might be time to conclude investing is not for you.

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Once countries have basic housing for the poor and an urban economy has installed the infrastructure to begin to grow, there is an increase in wealth, GDP and income per capita. This allows for a move from public housing to suburbanise into single unit family homes, something witnessed in many developed economies across the world. In the UK, the overall number of ‘housing starts’ has stayed largely flat since the 1970s, but the housing mix has changed from public to private homes. At the same time, timber consumption has increased as, on average, a single-family suburban home uses around three times the timber of a multi-family unit.

And

The result is that even when total new housing starts begin to level off, timber consumption increases again in the mature stage of an economy, leading to a third wave of timber construction. Not only is more timber used in single unit homes, the home improvements sector becomes a significant additional source of timber demand. In the US and developed world it contributes circa 35% of all consumption by the construction industry.

The big question for timber consumption in the medium-term is whether the trend of migration from cities to the suburbs will continue post COVID-19. The desire to exit population dense regions during the pandemic was understandable and not least because of the widespread public disobedience that characterised the lockdowns. The big question is whether that migration will be sticky. We do not yet know how long people will be happy working from home or whether they will miss the buzz of the city.

For four months, the Victoria’s Secret flagship store at Herald Square in Manhattan has been closed and not paying its $937,000 monthly rent. “It will be years before retail has even a chance of returning to New York City in its pre-Covid form,” the retailer’s parent company recently told its landlord in a legal document.

“In the prime real estate areas, all the stores rely on having half international tourists and half local tourists or those from the local neighborhoods,” said Thiago Hueb, a founder of a jewelry company who had decided to close his flagship store on Madison Avenue before the pandemic struck because of high rents.

Now brokers are calling him trying to lure him back to the block, but Mr. Hueb, whose jewelry is sold in 80 department stores nationwide, is not interested.

“The avenue is no longer what it used to be,” he said.

J.C. Penney and Neiman Marcus, the anchor tenants at two of the largest malls in Manhattan, recently filed for bankruptcy and announced that they would shutter those locations.

It easy to give into the groupthink that the lockdowns will last forever. They won’t. By the time next summer swings around the world is going to be awash in tourists again. The lure of US retail will still be powerful for international travellers. The sheer scale and variety is hard to beat, but the high sales taxes and import taxes elsewhere make the USA a favoured shopping destination. Between now and then we can expect a significant transfer of assets from weak to strong hands.

3. Valuation is not privatization It is a misconception to assume that valuing ecosystem services in monetary units is the same as privatizing them or commodifying them for trade in private markets (Costanza, 2006; Costanza et al., 2012; McCauley, 2006; Monbiot, 2012). Most ecosystem services are public goods (non-rival and non-excludable) or common pool resources (rival but non-excludable), which means that privatization and conventional markets work poorly, if at all. In addition, the non-market values estimated for these ecosystem services often relate more to use or non-use values rather than exchange values (Daly, 1998). Nevertheless, knowing the value of ecosystem services is helpful for their effective management, which in some cases can include economic incentives, such as those used in successful systems of payment for these services (Farley and Costanza, 2010). In addition, it is important to note that valuation is unavoidable. We already value ecosystems and their services every time we make a decision involving trade-offs concerning them. The problem is that the valuation is implicit in the decision and hidden from view. Improved transparency about the valuation of ecosystem services (while recognizing the uncertainties and limitations) can only help to make better decisions.

Assigning a value to the natural world is at once both helpful and also deeply concerning. On the one hand it helps to ascribe a value to the benefit each of us receives from the place we call home, the air we breath and the water we drink. These are often factors we take for granted, but we are increasingly being re-educated to think of the unnatural way in which these gifts have been distributed.

Dear Eoin and team, I would like to thank you very much for the big difference you have made to my confidence in advising my clients, since I re-joined the service. If only I could find a way of explaining the benefit to my professional contacts! All the very best

Thank you for your kind words and welcome back. The one thing I would highlight for prospective subscribers is that in the evolving global tapestry of events, some big picture perspective is likely to be beneficial.

Dear Eoin, I've enjoyed reading your words for quite a while. Today is the first time I am writing you. You included a snip-it from Martin Spring suggesting a genetic component to how people from Southeast Asia avoid infections. You also suggested that it might be potential herd immunity from previous outbreaks.

As a person who has lived in Hanoi for 12 years, I wanted to share my insights with you.

First, and foremost, the government was very quick to shut things down here. The border with China closed even before we had our first case in country. Given the history with previous outbreaks, the government knew enough to act swiftly.

Second, lots of propaganda. In every neighborhood there are announcements about covid. On TV you are reminded constantly about covid. Every time you call someone, they insert a message between the time you press the button and it starts to ring. That message reminds everyone to wear a mask, wash your hands, keep your distance, etc.

Third, people here are more compliant. Conflict is frowned upon. The government says do it, you do it. They say you will protect your parents and grandparents, so you do it out of respect. Young people often avoid wearing helmets on their motorbikes (required by law) but they all wear masks.

Fourth, and something I have not seen stated before, is the Vietnamese language itself. Vietnamese is an under-aspirated language. That is, people breath much less when they speak. In the English- speaking world, sometimes we feel others spit on us accidentally while they are speaking. This does not happen in Vietnam because of the way the language works.

In short, there are plenty of reasons why Vietnam, in particular, has been lucky. Of course, we just started our second wave and now have 16 deaths. Still, I see no reason to believe that there is a genetic component to Vietnam's good fortune. Keep up the great work. Even those of us who never write to you find great value in your insights. Best regards, J.

Thank you for this informative email and your kind words. The Vietnamese response has been very impressive and I in no way wished to disregard the Herculean efforts they have made to contain infection. I did however wish to draw some attention to the question of where the disease in fact originated.

Some of the biggest countries are recording amazingly low figures. In India the virus has killed only two people per hundred thousand. In Brazil less than 4 per cent of those infected are dying. Nowhere is Covid-19 much worse than a bad outbreak of flu. That’s why I call the extreme policies of lockdowns and border closures the Self-Inflicted Disaster.

You may remember that I suggested months ago that the extraordinarily low infection rates and deaths in East Asia could be because people of Mongoloid race have strong genetic resistance to the virus. Till now nobody has wanted to say that could be so, because of fear of being accused of racism. However now I see that the New York Times, in an article about Thailand’s amazing success fighting Covid-19, suggests there could indeed be a genetic component in the immune systems of Thais and other peoples of the Mekong River region. Thailand has experienced only 58 deaths from the virus; Vietnam none at all; China’s southwestern province of Yunnan fewer than 190 cases.

There is an alternative interpretation of the fact that cases in Yunnan, Cambodia, Laos, Thailand, Myanmar and Vietnam has been so low. What if these populations already had herd immunity because they have been exposed to similar diseases in the past?

The first is that many investors have underestimated the impact of low rates on valuations.  In short, what should the stock market yield?  Not its dividend yield, but its earnings yield: the ratio of earnings to price (that is, p/e inverted).  Simplistically, when Treasurys yield less than 1% and you add in the traditional equity premium, perhaps the earnings yield should be 4%.  That yield of 4/100 suggests a p/e ratio (the inverse) of 100/4, or 25.  Thus the S&P 500 shouldn’t trade at its traditional 16 times earnings, but roughly 50% higher.

Even that, it’s said, understates the case, because it ignores the fact that companies’ earnings grow, while bond interest doesn’t.  Thus the demanded return on stocks shouldn’t be (bond yield + equity premium) as suggested above, but rather (bond yield + equity premium - growth).  If the earnings on the S&P 500 will grow to eternity at 2% per year, for example, the right earnings yield isn’t 4%, but 2% (for a p/e ratio of 50).  And, mathematically, for a company whose growth rate exceeds the sum of the bond yield and the equity premium, the right p/e ratio is infinity.  On that basis, stocks may have a long way to go.

The removal of the discount rate, as a basis for valuing cashflows has an outsized effect on all income producing assets. That implies the persistent threat of deflation which allowed long-bond yields to compress to historically low levels globally will persist indefinitely.

Digital continues to rise. Pre-COVID-19 trends will likely accelerate, with direct-to-consumer e-commerce, such as brands’ websites, shoppable social-media platforms, and marketplaces becoming more important. Across the globe, consumers indicate they are likely to increase their online engagement and spending. Beauty-industry players will need to prioritize digital channels to capture and convert the attention of existing and new customers. On the operations side, the use of artificial intelligence for testing, discovery, and customization will need to accelerate as concerns about safety and hygiene fundamentally disrupt product testing and in-person consultations.

The pace of innovation accelerates. As the COVID-19 crisis has shown, the world can change quickly, bringing substantial shifts in demand. Sometimes, supply cannot catch up. Even before the pandemic, brands were under pressure to overhaul their product-innovation pipelines, inspired by the ability of digital-native direct-to-consumer brands to go from concept to cupboard in less than a month. Now, the need for speed is even greater. To achieve it, there may be a greater role for contract manufacturers, both to diversify (and thus reduce production risks) and to serve as thought partners in product innovation. There is also potential for closer collaboration—among brands and retailers, in particular—through data sharing and inventory pooling.

M&A rises as multiples fall. With the COVID-19 crisis causing significant damage to the balance sheets of brands, retailers, and suppliers, many companies will need to find new sources of capital. At the same time, given the hits to revenues and the global economy, multiples could fall from precrisis levels, when some brands were trading for more than eight times revenue or 10 to 15 times earnings.

The clearest trend in online retail is the evolution of the in-person sales experience. Most men think of shopping in a perfunctory manner but most women think of it as a pleasurable experience which is part of a daily social experience. It is very difficult to replace the sales experience of in person contact online and from a purely technological experience it is inefficient. That’s where livestreaming comes in.

In the view of analysts from Goldman Sachs Group Inc. and Oxford Economics, rate increases may be warranted soon. Others are less bearish, citing a shortage of liquidity in the offshore money-market engineered by authorities.

The cost of overnight funding spiked to over 1,000% earlier this week, making it prohibitively expensive for foreign investors to borrow the currency and bet against it.

“My sense is that there is more tolerance for currency volatility than there is for a drastic measure like an emergency rate hike,” said Phoenix Kalen, a strategist at Société Générale in London. “And with the squeezes in the front-end rates, market participants are, needless to say, wary about getting burned trying to short the lira speculatively.”

The single biggest lesson this year is that COVID-19 is an accelerant. It has exaggerated just about every trend that was in evidence in 2019. That’s as true of yield compression and gold’s bull market as it is of the growth of cloud computing. It’s also highlighting the serious debt problems of countries like Turkey.

Robusta coffee futures have surged about 16% in London this month, the biggest gain for a most-active contract since June 2010 amid a shift toward home coffee consumption. Worldwide lockdowns that shuttered cafes, restaurants and offices have supported demand for robusta beans, typically favored to brew instant coffee at homes.

“Nestle results provide confirmation at-home sales is doing very well,” said Carlos Mera, an analyst at Rabobank in London. “It was priced in to some extent, based on IRI data from the U.S., but this is more global.”

Robusta spreads have firmed up and its certified stockpiles have fallen to the lowest since the start of last year. Speculators covering their negative positions has also helped prices rally in recent weeks. Smaller robusta crops expected in Brazil and Vietnam in the 2020-21 season are also bullish for prices, Rabobank said.

I’ve been working from home for 13 years and even I am drinking more coffee than normal lately. Many people have probably discovered that with the help of capsules of home espresso machines it is possible to get better tasting coffee than what is available from Starbucks. Arguably, that wouldn’t be difficult.

In some ways, however, that was the easy bit. The U.S. economy now enters a phase that cautiously could be described as the beginning of a recovery. However, remember that the virus is still out there. This leads to the question of how QE can continue to provide support in the months ahead? In terms of mechanics, the Fed describes the main purpose of LSAP as putting "[…] downward pressure on longer-term interest rates […]" in order to stimulate economic activity by generating attractive financial conditions.5 The key word behind those mechanics would be financial conditions. Such metrics generally try to describe the "[…] financial conditions in money markets, debt and equity markets […]" as the Federal Reserve of Chicago puts it.6 In other words, measures of financial conditions gauge the effectiveness of monetary policy.

Deriving a metric that summarizes the stance of monetary policy once the policy rate hits the Zero Lower Bound (ZLB) is not a trivial task, however. The monetary stimulus, as a combination of rates at the ZLB and asset purchases, is not directly observable. Our preferred methodology to overcome this problem would be the so called shadow short rate (SSR) as provided through the Reserve Bank of New Zealand.7 This concept mathematically derives a theoretical policy rate which is based on the evolution of the whole yield curve, therefore accounting for the impact of QE once the true policy rate is at the ZLB (see Chart 2).

Using the inflation of financial assets as a way of measuring the success of monetary accommodation is a recipe for bubble inflation. Nevertheless, it is the most expedient way to measure the impact of a central bank’s actions in fostering growth.

Unfortunately, the vast majority of the tests were done at the big new Optum site, or inside local hospitals, and processed by Quest Diagnostics and LabCorp. Five months into the pandemic, the two giant private testing companies were taking more than a week to send back results. “If I look at Optum I always ask, ‘What am I going to do with this, because the result is eight to 10 days old?’” said Erica. “Your ability to contain is over.” By the time she got a hold of people to inform them that they had Covid-19, they no longer had Covid-19. There was no point in isolating them.

I think the rest of the world must be bemused at the resistance many Americans have to cooperating with public health officials, wearing masks and social distancing. As far as I can see there are a couple of reasons that simply are not getting discussed.

When I was tested in early May it took 11 days to get the results. That’s frankly ridiculous and timelines have not improved. I was feeling flu symptoms for about 24 hours and I quarantined myself away from my family for two days but it was a 24-hour bug so maintaining distance when you feel fine is difficult. In the end my results were negative. However, if I was positive, I would probably have passed it one to multiple people before I got my results. That pretty much means that testing is futile and everyone who has been tested knows it.

During today’s testimony before a Congressional antitrust panel, Mark Zuckerberg went off-script a little bit -- at least the script we expected -- pointing out how Facebook Inc. lags behind a number of competitors, including Alphabet Inc., Amazon.com Inc. and Apple Inc.

Zuckerberg isn’t hesitating to use some sharp elbows, pointing out that Amazon is the fastest-growing advertising platform and Google is the biggest.

“In many areas, we are behind our competitors,” Zuckerberg said. “The most popular messaging service in the U.S. is iMessage. The fastest growing app is TikTok. The most popular app for video is YouTube. The fastest growing ads platform is Amazon. The largest ads platform is Google. And for every dollar spent on advertising in the U.S., less than ten cents is spent with us.”

This is why the executives likely preferred to appear at once -- it allows them to spread the burden. The antitrust case against Google and Facebook is far stronger than the one against Apple, for instance.

The five largest tech companies in the USA have dominant positions in the social/ecommerce/cloud computing sectors. They may compete with one another but the barriers to entry are so large that it is largely beyond the scope for smaller companies to compete. In fact the only way for established businesses to reach consumers in any other these sectors is to use the products and services provided by the big five.

Kōno said Japan would welcome an invitation to join the Five Eyes grouping.

He warned the growth of the Chinese economy has allowed China to purchase foreign tech companies, adding: “This is a development we must monitor closely. Tech-partnerships with countries like the UK will be critical to countering China, pooling our investments and encouraging our people to study the skill sets needed for our high-tech sectors to grow.”

He added China was attempting to become independent of the US dollar economy through fast money-sending services, the introduction of their own internet, launching a digital renminbi and introducing a Chinese international order.

Kōno in his remarks stressed he was not seeking a military conflict with China, and was instead hoping to provide the Chinese Communist party with the space to cut defence spending, allowing democratic nations to take parallel steps.

Urging caution about economic decoupling, Pascal Lamy, the former World Trade Organization director general, predicted a more autonomous and closed China was likely to prove more dangerous. But he warned: “The west cannot coexist in a free trade relationship with a country that subsidies 30% of its economy. If China is not willing to accept global disciplines on state aid then we have to review a number of trade commitments – whether it is on public procurement or in specific sectors.”

The coronavirus crisis has been an accelerant for just about every trend. That is particularly true of the Anglosphere’s awakening to the threat posed by China’s increasingly ambitious program of global domination. There is no getting around the fact that many countries are heavily reliant on Chinese suppliers for essential components and products to fuel their economies, and are also reliant on Chinese demand to absorb their exports. Therefore, the process of decoupling was never going to be a simple process but it is underway and is likely to persist.

Evacuations of the mostly local tourists will take at least four days, with domestic airlines running 100 flights from Da Nang to 11 Vietnamese cities, according to Reuters.

The first case was confirmed on Saturday, with another 11 cases, all from the hospital where the initial case was being treated, confirmed late Monday.

These are the first cases of Covid-19 in the country since April.

Those leaving Da Nang will have to self-quarantine for 14 days, fill out health declaration forms, or report on their health to local authorities.

Vietnam’s aggressive response to the burgeoning outbreak is a prime example of how it has been able to keep the pandemic at arm’s length.

With a population close to 95.5 million people, Vietnam has seen only 431 cases of Covid-19 and zero deaths, according to John Hopkins University.

The number of countries that successfully quashed coronavirus infections in February and March is frighteningly small. Vietnam was among the leaders in aggressive early action and it succeeded in keeping its case numbers low and spread contained. It is testament to just how difficult the virus is to contain that cases are rising once more in Vietnam.

The stimulus debate pits the GOP’s political pragmatists against its spending hawks, with the fate of swing-state incumbents hanging in the balance: At-risk Republican senators don’t want to return to the campaign trail during the August recess empty-handed, while fiscal conservatives recoil at any plan that they see as ballooning the deficit and conditioning the public to expect broader government assistance once the pandemic is over.

At stake could be control of the Senate and White House, some Republicans warn. The nonpartisan Cook Political Report last week released a new analysis of key Senate races that for the first time this cycle favored Democrats to take back the chamber.

Democrats already control the House and are expected to keep or expand their majority in November, making the GOP-held Senate a critical bulwark against total Democratic control of the legislature next year. Democrats need to flip three seats from red to blue to seize control of the chamber in November, or four if President Trump wins re-election.

The massive stimulus introduced during the initial lockdown with $1200 for the majority of adults and $600 a week for millions of unemployed people plugged a significant hole in consumer spending potential. It also allowed ecommerce businesses to flourish and gain market share.

For a view of just how high the bar is set for technology stocks, consider this: Every single one of their earnings reports this season has topped forecasts. Yet the sector has recently gone from being 2020’s best performer to one of its biggest laggards.

Not that beloved tech companies have crumbled. Since the reporting season began July 14, the S&P 500 technology sector is up 0.7% while the Nasdaq 100 is virtually unchanged. But both have trailed the broader S&P 500 over the period, and tech’s performance is the second-worst of S&P’s 11 main sector groups.

That’s a change from earlier in 2020 -- a year in which megacaps and tech firms have been viewed as coronavirus havens because of their strong balance sheets, healthy profit pictures and the fact that some have actually benefited from the stay-at-home economy. Still, with the tech-heavy Nasdaq 100 up 22% this year, investors want proof that those stocks are worth the high prices they’re fetching.

“On the positive side, there are so many reasons why tech should be okay,” said Gene Goldman, chief investment officer at Cetera Financial Group. “But on the negative side, it’s just valuations and earnings. It’s a high bar that companies are going to have to beat.”

Stay-At-Home stocks have been the clear winners from the lockdowns. The concentrated number of winners coupled with a surge in liquidity and punters eager to participate resulted massive outperformance over the last few months. 

The US dollar accounts for over 50% of reserves held and has unwaveringly remained the primary reserve currency since 1945, especially after it replaced gold as the most-held reserve asset after there was a move to a fiat monetary system.  European currencies have remained steady at 20-25% since the late 1970s, the yen and sterling are around 5%, and the Chinese RMB is only 2%, which is far below its share of world trade and world economic size, for reasons we will delve into in the Chinese section of this book.  As has been the case with the Dutch guilder and the British pound, the status of the US dollar has significantly lagged and is significantly greater than other measures of its power.

That means that if the US dollar were to lose its reserve status and significantly depreciate in value it would have a devastating effect on the finances of those countries holding those reserves as well as private-sector holders of dollar-debt assets.  Who would be the winners?  Those with dollar-debt liabilities and those with non-dollar assets would be the big winners.  In the concluding chapter, “The Future,” we will explore what such a shift might look like. 

The massive increase in the supply of currency since the end of the quantitative tightening regime last year is a headwind for the US Dollar. The fact the monetary and fiscal assistance programs deployed by the USA are much larger than in other countries is certainly a near-term headwind for the Dollar but the big question is whether this is a secular change?

After negotiating through the night, the Netherlands, Austria, Denmark and Sweden are satisfied with 390 billion euros ($450 billion) of the fund being made available as grants with the rest coming as low-interest loans, the officials said, asking not be named discussing private conversations. The total size of the recovery package is in flux, but an earlier proposal was for 750 billion euros.

The bloc’s 27 leaders will gather again at 4 p.m. in Brussels to settle the outstanding issues such as the overall size of the fund and the mechanisms for controlling its spending. A French official said that their delegation now see a path to a full deal.

“After lengthy talks last night, we worked out a framework for a possible agreement,” German Chancellor Angela Merkel said on Monday. “It’s progress and gives hope that perhaps today an agreement will be made, or at least that an agreement is possible.”

€750 billion is a substantial aid package, but is rather small when compared to the measures taken by the USA. The reluctance of creditor nations to give money away, the length of time taken to negotiate the deal, and the fact the agreement has been reached following the peak infection point for Eurozone countries have contributed to the tailored size of the package.