November 20 2020

The Only Sure Thing in Life

If you do have a headache, please get a covid test by all means. If it comes back negative, it may be that the cause of your brain-raking is in the senseless gyrations of the markets right now.

After headways on the vaccine were announced, we could understand a relief rally and some rotation out of covid stocks (Peloton, video gaming, Zoom) into value stocks (banks, small caps, offline retail). Now the number of covid cases are growing like there is no tomorrow, the market is careful not to bet too much on an immediate rally of the dead alive companies, and still don’t give up entirely on their tech exposure. These portfolio rotations ebb and flow every other day this week and the market seriously lacks direction.

So where does the truth lie? The only sure thing in life is debt, and this is precisely the cure you’re going to get. Whether through the central banks or fiscal stimulus, money will have to be injected again in the system, increasing national debt. The Fed has been reluctant to further cut interest rates, but will certainly boost asset purchases programs. The fiscal stimulus appears less likely though, now the Senate appears as divided as ever, but will have to kick-in one way or another.

One of the many things we ignore is how much growth and inflation will this be able to generate. The side effects on the contrary are almost compulsory: a rise of risky assets, and further increase in real asset prices. In essence, the house wins again, but if this happens without a meaningful equally-distributed growth rate, and some decent inflation, this would repeatedly create unsustainable inequality. You don’t want that.

360 Advisory – Markets