Submitted by Michael Every of Rabobank
Please Curb Your Enthusiasm. That’s true if you are US President Donald Trump spotting funny-man Larry David wearing a MAGA baseball cap in his TV show and wanting to tell the world about it– because in this particular case Larry was doing it for a joke in the episode to avoid having to talk to people. ( “It worked like a charm…it’s a great people repellent,” says David in the show.)
It’s true if you are Larry David’s distant relative Bernie Sanders. Despite winning the New Hampshire primary ahead of Mayor Pete, making it 1.5 from 2, and establishing himself as the presidential nominee frontrunner, with establishment favourite Joe “White Walker” Biden coming fifth, don’t think the Democratic Party machine is going to sit back and let a populist stride to the finishing line unopposed. Recall 2016? There’s a billionaire or two waiting in the wings, at least.
It’s true if you are one of those who think there is a happy bridge between Biden and Sanders voters on the left to beat the Trump. We argued this was not logical back in ‘The Age of Rage’ report this time last year, and please consider this practical recent example. Many on the left are basking in the Oscar victory of the South Korean film ‘Parasite’ and, yes, it’s a fantastic film, a well-deserved winner, and it’s high time that a film with subtitles can win Best Picture and not just Best Foreign Language Film - as if the real language of film is English and everything else was just marginal! However, ‘Parasite’ itself is about the massive socio-economic inequality that has emerged in once-poor South Korea as it has globalised, which always comes with that economic territory. Practically, there are untold numbers of Americans waiting tables in LA while waiting for their ‘big break’. Hollywood already richly-rewards Canadians, Brits, Aussies, and Kiwis (as well as the odd European and even Egyptian), and it is much fairer if everyone can now be a Hollywood star more easily too; but that will necessarily mean more competition for stardom and more waiting of tables for many Americans. Of course, that liberal-yet-neoliberal position has been ‘the Left’ for decades.
However, consider this too: the South Korean film industry is the beneficiary of a massive state-aid programme. This began decades ago, when it was realised that there was serious money, as well as soft power, to be made. “Why export so many cars, and then see all the proceeds spent on imported culture?” was part of the thrust for the South Korean movie industry’s development, as well as the desire to ensure that Korean was entrenched as a language that matters globally. As such, the South Korean film market is protected and regulated; film-making, and the export of films, are subsidised; and the result is a stream of highly-popular and money-making soap operas and movies…like ‘Parasite’. Which, if you really understand it, is in direct contradiction to the liberal/neoliberal combo.
Meanwhile, and more pressingly, Curb Your Enthusiasm about the now-renamed Covid-19 virus. We have 1,115 deaths, which keep marching higher, vs. 4,849 recoveries, and now 45,183 cases, which is seeing a slight reduction in the rate of increase. However, there are genuine concerns that China has now reclassified who is a virus case. Being asymptomatic and a carrier now qualifies as a negative result; add that to the limited number of tests being done; and to the cases of false negatives already reported; and to the fact that one recent report says the dormant virus carrier period is as long as 24, not 14 days, and the data quality the market is trading enthusiastically from looks questionable. Meanwhile, numbers keep marching higher outside China. While still contained, we are at 49 in Hong Kong (where one mall reportedly just cut its rents by an unheard of 50%); 47 in Singapore; 33 in Thailand, 28 in South Korea, etc. Low numbers, but high growth rates, and a growing sense of concern in Europe too, finally, based on the media headlines.
Regardless, China appears to have perhaps decided that the economic damage being wrought by a demand collapse and supply-chain shutdown is just too much to bear. Xi Jinping has stated that China will meet its economic goals AND win the battle vs. the virus, and Beijing is urging firms to increase output even as the capital itself is largely locked down – and other cities are physically locking people into their homes. That’s as even the US admits that the Phase One trade deal will be slow off the market due to the virus impact, which does not suggest a rapid return to BAU. Of course, China is no stranger to Double Think: a freely-floating, controlled currency; market-determined, state-directed interest rates; and free-trade mercantilism. Yet increase economic activity from here and the virus will spread, both internally and globally. Concentrate on just the virus, and the local and global economic impact will be enormous. That’s a dialectic that has no comfortable Fichtean synthesis to the thesis and antithesis. Either way, things are going to get nasty for economies and markets – especially with official WHO word that a vaccine is 18-months away.
Even the Fed, in the form of Chair Jay Powell, now sees that the Covid-19 presents downside risks despite only 13 US cases to date and an NFIB small business survey that basically said “Trump 2020” in its upbeat tone. For now, those are just risks – but the window for 2020 rates action has been opened by Covid-19 even earlier than we had expected.
The RBNZ also opted to leave rates on hold at 1% even as New Zealand shivers from this Chinese cold and its lack of tourist flows – and NZD is up almost a cent as a result, adding insult to injury. Presumably NZ house prices must be on the up to explain that lack of enthusiasm.