A clear picture of how strange the world is right now.

I’ve got a couple of fun pieces for you today, that show you just how crazy the world is right now.

First up, if this chart doesn’t make you spit out your coffee, you’re not getting it.

This is a stock market index constructed by Goldman Sachs. It takes major companies on the US market, in ‘innovative’ industries, that are losing money. That is, they’re not profitable.

And look at what’s happened.

What’s the sound-effect here? Ka-boom doesn’t even seem to cut it.

There has been an incredible boom in prices of these ‘growth’ stocks – stocks that are tipped to one day be major players and incredibly profitable, but aren’t there just yet.

But of course they’re booming. The future looks so bright. Covid is sorted, the world’s economies have fully bounced back, global trade tensions are sorted, and the political landscape is stable.

I mean, no it’s not. None of that’s true. The world is in no way a 10x better place to be doing business now than in March.

But that hasn’t stopped these speculative stocks booming.

So is anything driving the boom. Well, a lot of it is hype, but it’s also comes down to super-cheap interest rates and money printing.

Up next – an irrational property boom?

Probs.

The other chart that’s a bit coffee-through-the-nose is this one.

This is the coal price. But you can see there’s two separate prices. The blue line is Australian free-on-board price (before it leaves Australia). And the red line is the Chinese delivered sea-borne – the price it is by the time it lands in China.

Right now, there’s a massive disconnect.

Why? Because China is still throwing a hissy fit and embargoing Aussie coal boats.

That hasn’t really hurt Australian exporters, because there will always be other markets for their product if China won’t take it.

But it has hurt Chinese consumers and the Chinese economy by driving energy prices higher.

I’m calling that an own-goal.

At any rate, with trade tensions pushing commodity prices higher, Australia is on the grateful end of another commodity boom, with iron ore prices in particular through the roof.

So we’re potentially seeing a rehash of the dot-com bubble, and trade-tensions are sending a massive income shock right into the heart of the Australian economy.

Strange, strange times we’re living in.

JG

RBA reckons house prices will boom, until this target improves.

So the RBA reckons house prices are going to boom 30% over the next three years.

They got hit with a Freedom of Information request. People wanted to know what the RBA would happen with interest rates at such incredible lows, and money gushing into the system.

Surprise, surprise. They think house prices are going to boom.

Confidential analysis by the Reserve Bank of Australia suggests house values could jump 30 per cent over three years if borrowers believe the cut in interest rates is permanent.

… An internal RBA document released on Friday in response to a Freedom of Information request says the biggest risk to the economy was high unemployment, and that stronger household balance sheets from low rates could help counteract the danger.

“High unemployment is the biggest risk to the economy, balance sheets and medium-term financial and macro stability, and lower interest rates can help reduce this risk.”

Unless there is evidence of a sharp jump in credit growth and risky lending – which it does not presently see – the RBA is relatively comfortable with rising house prices.

No kidding. Their economists must be reading my blog. But it’s not rocket science. Super-low interest rates were always going to cause house prices to boom.

The only question now is there anything that might cause the RBA to change course?

Here, the RBA gives us a clue:

“High unemployment is the biggest risk to the economy, balance sheets and medium-term financial and macro stability, and lower interest rates can help reduce this risk.”

With inflation effectively side-lined for now, the RBA’s focus has shifted to employment, and they’re letting us know that low rates are here to stay, until the employment data improves.

And what’s happening on that front?

Well, so far the employment data has been pretty positive. Employment on the whole is holding up, although there has been a shift from full-time to part-time work.

(Part time employment is now higher than it was pre-Covid!)

The headline unemployment rate has also improved, back down to 6.6%. There’s also been a big improvement in underemployment, and the underemployment rate is now lower than it was in March. That does seem a bit unusual, and maybe reflects the influence of the JobSeeker supplement and JobKeeper.

Westpac calculate an “effective unemployment rate”, which tries to look through the impact of Covid. On their measure, effective unemployment is back where it was pre-Covid, suggesting that the labour market is very well placed.

The RBA would be happy with this, but there’s still upward pressure on the unemployment rate, particularly as JobKeeper winds up in March. The pivot to part-time also needs to be reversed at some point.

So you wouldn’t describe the labour market as ‘tight’, even though the headline figures are looking pretty decent.

So I’ll be watching the employment data closely over the next 6 months.

If things hold around their current levels, then I think the RBA will see it as a case of ‘steady as she goes’.

If things get worse, especially as JobKeeper is unwound, then the RBA may even be encouraged to pump more money into the system through their QE program.

And if we see a pivot back to full time work, followed by a drop in the unemployment rate back into the 5’s, then we might see the RBA try to taper things back.

But even in the best case scenario, that’s 9-12 months away.

So watch this space.

For now, the RBA’s boom has legs. 

JG

Most of the media has completely misunderstood what happened in Washington…

America is dead. It’s done for. Throw a flag over the coffin. It’s all she wrote.

The “failed coup attempt”, the “insurrection”, the “riot”, the “mob” or whatever you want to call it – is the first crack in a great nation splintering to pieces.

Time to give up on America and all start learning Mandarin or Arabic…

That’s the vibe, right? That’s the general gist of what we’re seeing in the ABC or the Guardian or even Nine and Seven.

It’s the end of American democracy.

What a load of rubbish.

If I have to read this one more time I’m going to put on my horned shaman hat and occupy Woolworths.

Let’s unpack it a little bit.

First up, let’s be clear about what we’re talking about.

We’re talking about a protest, maybe a ‘riot’ at best, but only in isolated moments.

Yes, some people at the (rally / protest / dance party) were there to overthrow the government. That’s what they came for.

But one lone nutter does not a revolution make.

And it sure as heck wasn’t a ‘coup’. I think you need at least one tank to call it a coup, and generally you seize the media channels at the same time as you seize the institutions of power.

That didn’t happen and there was no attempt to make it happen. As I said, Trump’s calls for insurrection were pure posturing, and it’s why it only took a few hours for him to turn around and throw all of his “insurrectionists” under the bus.

“We love you… but go home.”

And yes, it highlights divisions in America.

Yes, it reminds us that there are some people with some pretty radical ideas. Many of those people have guns.

But that’s America for you. It’s all on show.

America is that crazy uncle who has decided to stop pretending he’s crazy.

China, Russia – they’re your prudish aunties who keep any hit of madness violently supressed under a barrage of benzos and charity work.

The riot in the American capital was not evidence of American democracy failing. It was evidence of it working.

It was evidence of diversity of opinion coexisting – of the nation’s most radicalised being able to blow off steam, and the organs of government just chugging along and doing what they were supposed to do.

American democracy was tested, and I reckon you’d have to say it passed.

And at what cost? A death toll of just five people, and most of those not even direct.

When you’ve got a million people dying of starvation, then call me up and tell me about a nation falling apart.

Yes it was messy. Yes it was ugly. But that’s America for you. It’s all on show. It’s not trying to hide it from you.

And that’s what makes America great.

From strength to strength. 

JG

Covid still has us under the thumb… That’s good and bad.

I’m starting to feel there’s a bit of confusion or some wishful-thinking in the way most people are reporting where we’re at with Covid.

Now, I’m probably talking market analysts more than the mainstream media here, since I read more market reports than I do newspapers.

But a lot of analysts seem to be talking like Covid is a done deal. That we’ll get a vaccine in a few months and job done. Hang a banner off a battle cruiser.

But it’s not looking like that to me at all. First, Covid is on the back foot, but it’s not out of the fight yet. Second, the damage to the global economy has been pretty brutal, and those scars won’t heal over night.

Let me show you what I mean.

First, the UK outbreak continues to look a bit scary to me. The numbers of infection and deaths is pretty ugly, and heading in exactly the wrong direction:

But it’s Covid’s ability to mutate and throw an entire economy off the rails in a matter of weeks that’s really scary.

And maybe a vaccine helps here, but if Covid keeps mutating, how long before it mutates beyond the reach of our vaccines? (That’s a technical question and it might have a simple answer, but I don’t know what it is and I’m pretty sure most economists don’t either.)

And this renewed outbreak in the UK (and China too I might add), is happening in an economy already punch-drunk on the first wave.

Take a look at global GDP. It’s down about 8 or 9%. Our major trading partners are down over 5%. That’s a depression-like contraction in output.

And large chunks of the world are still in lockdown. This is Goldman Sach’s “Effective Lockdown Index” which shows how much of the world is still in lockdown.

China is doing best, but still 10% of its economy is in lockdown. The rest of the world is worst (Australia is probably better), and some regions are going in the wrong direction. (Come back, Western Europe, come back!)

Like the RBA above, Goldman reckons Covid is still dragging the economy down about 9%…

The US is holding up, perhaps surprisingly well, but GDP is down a colossal 20% in the UK and Western Europe.

So I don’t know. I’m generally not a glass-half-empty kinda guy, but there’s not a lot to get excited about here.

This is a picture of a world still pinned down under the thumb of a virus. I don’t know how much hope we should be putting in untested vaccines, but even if they’re wonderfully effective, there’s a lot of healing that will need to be done.

I certainly don’t think we’re at the stage of looking through things to the post-Covid world, which is what a lot of economists seem to be doing.

Now, this is both a good and a bad thing, depending on how you look at it.

It is bad for our general way of life. It’s a pain, and the economy is going to take a long time to recover.

Perversely though, it’s probably a good thing for asset prices, as floods of easy money keep gushing into the system.

Take a look at the American Financial Conditions Index. It’s the easiest financial conditions ever.

That will light a fire under asset prices.

Let’s hope there’s enough of us left to enjoy it.

JG

No B.S Friday: What really happened in America… (I reckon)

So Trump’s downfall was as fascinating as his rise. I’m going to show what the death blow actually was, and why it was so easy to march a mob into the American capital.  

Oh, but yeah. This is the first blog of the year, so I guess I should start with something to mark that.

So, have a great year everyone. Believe in yourself. Pull the finger out. Make the most of the opportunities etc.

I’ll come back to that Friday, but I wanted to jump in to this because if I’m honest, I’m not thinking about anything else right now. It’s just fascinating.

Ok, so this story starts with a puzzle: why was a rag-tag mob of protestors able to waltz right into the parliament of the most powerful nation on earth?

How does that happen? There is literally a military unit devoted to keeping the congress safe? They didn’t anticipate that they’re might be trouble at a protest that has been telegraphed for weeks?

No. It doesn’t add up.

Business Insider says that this is proof that it was an actual coup attempt. They quote someone in charge of similar operations in Europe who said, “We train alongside the US federal law enforcement to handle these very matters, and it’s obvious that large parts of any successful plan were just ignored.”

Right? To me, it’s just not tenable that it should ever have been that easy.

So, was Trump actually trying to execute a coup?

I don’t believe that for a minute.

First, you don’t try and seize the reins of power by marching an unruly mob into parliament. That’s just not how the game works and Trump would have known that.

Second, if marching a mob into parliament actually was part of the play book, where was the follow up act? In particular, where was the tightly-managed media strategy that Trump has become famous for?

No, it was clear that Trump had nothing. He was surprised as anyone.

And to me, it looks like Trump got played.

Like a boss.

I reckon Trump expected the protestors to simply get turned back at the gates – like every other sane person on the planet.

And to me, I don’t think the coup was ever Trump’s end game. I don’t even think he’s serious about hanging on to power.

Look at it through a business lens. He was positioning his brand and cultivating his followership. That’s why he had to fight the idea that he ‘lost’ the election.

 If you ‘lose’ the election, then it’s off to retirement you go. However, if the election is stolen from you, then you become the ‘king in exile’, and the only choice for nomination in four year’s time.

And so that’s what Trump’s game has been. Build up the stolen election narrative to hang on to his relevance.

And it was working. It was working well.

But then Trump became responsible for marching a mob on parliament – the ‘coup’, the ‘riot’, the ‘insurrection’ or whatever the media latched on to.

Once that happened. The optics became terrible.

Remember, Trump is an optics-driven strategist. I know first-hand. It’s something that happens to you when you manage a marketing department. You become focused on the optics.

And remember during the Black Lives Matter protest where he posed outside of a church waving a bible?

Incredible optics. To his fearful Christian conservative base, it was a signature moment. In the midst of chaos, he was to be an anchor of faith.

But then this happened:

Yup, that’s a bare-chested figure with horns sitting on the throne, flexing his biceps.

(For the record, that’s a self-declared ‘hyper-dimensional being’ called the Q-shaman. Yep. “Shaman.”)

This was now Trump’s America. He was not the hero defending the little old church under siege. He was the one ushering the barbarians and the hordes of darkness in through the gates. And they looked like this:

You’ve seen the photos.

Fearful America was not happy.

Trump tried to put some distance between himself and the scene that night, but it was way too late. Like, they’re literally wearing your hat with your name on it. How much distance could you ever possibly get?

And so I think this is the end of Trump. His base won’t desert him, but for moderate Republicans he’ll be remembered as the dickhead-in-chief who almost led a pack of dickheads (optically speaking) over the wall of American democracy.

And I’ve got to think it’s an inside job. I’ve got to think that there was someone on the inside who undermined the defences of Congress enough to let that mob in – who knew that once they were in, they were unruly and ugly enough to create some terrible visuals.

Just leave the cameras rolling.

And this is why it’s such a boss move. It hit Trump where it hurt. Right in the optics.

For four years, Trump has dominated this side of the game.

But this week, he got his MAGA hat handed to him.

Wow. I hope the rest of 2021 is going to be as fascinating as the first six days.

JG.