By Michael Every of Rabobank
A Whole Bunch Of Hooey
Welcome to another day of “a whole bunch of hooey”:
US stocks are at new record highs, money-losing stocks are rising again, Treasury bond yields are lower, and the US dollar is higher. Once again we are in “Buy all of the things” mode, it seems, despite the fact we know how this ended up when we’ve tried it before.
Facebook has beaten an anti-trust lawsuit, but Google is seeing one start; so it’s a mixed bag for Big Tech under a more activist FTC for the first time in a very, very long time.
US banks are of course pumping up dividends and stock buybacks now that stress tests have been passed.
Former President Obama has stated: “What we saw was my successor, the former president, violate that core tenet that you count the votes and then declare a winner – and fabricate and make up a whole bunch of hooey.” The US remains deeply, worryingly split between those who agree with the above completely, and those who think if you remove the hyphen in the same sentence it describes the actual reality.
Indeed, the only area of bipartisan agreement in the US is China, where the US House of Representatives has passed its own version of an anti-China tech/industrial policy bill. The two bills will now need to be reconciled, with the only difference being how tough the final bill is (very, or very, very), and how much spending it allocates to US R&D (lots, or lots and lots). That’s both economic stimulus and New Cold War all in one – as large firms and funds, and many Western leaders, still refuse to admit the latter is happening. On which, see Michael Schuman in Bloomberg -“The West Can’t Call the Shots on China’s Agenda”- arguing we are *already* in a Cold War, and for the West, “the faster their leaders grasp this unfortunate reality, the better they’ll be able to contend with it.”
The Fed are still talking about a very gradual path towards normalization; the ECB very much isn’t; and the PBOC are now giving hints of moderate policy easing as they start to think about what will happen when the Fed moves in the other direction.
The Fed’s Rosengren also stated yesterday that the last thing the US needs is another housing “boom and bust”. Which part of that are we going to be skipping for the first time ever, and does that mean we are no longer allowed to have (crazy) market cycles? Indeed, has he seen house prices lately? They suggest one of his two horses has already bolted – so what can be done to keep the other one in the stable?
Relatedly, the US is still undecided on the scale of any more fiscal stimulus; yet Germany may want the EU to return to austerity from 2023, and perhaps the UK may yet join it(?);
The UK is opening up its economy on July 19 regardless of what the Covid Delta variant is doing - but Hong Kong is about to ban all flights arriving from the UK from Thursday.
Meanwhile, Niall Ferguson -the historian, not statistician- argues we haven’t won the war on the virus yet, as only 10% of the world is vaccinated, and only 0.3% of those shots have been in the world’s poorest countries. Largely unreported, the Indian Bar Association is suing the WHO Chief Scientist for tweeting against the anti-Covid use of Ivermectin - which still cannot be mentioned on some US social media even by leading scientists at all.
It’s 46C in the US Pacific Northwest; and Bloomberg reports on looming “water wars” in the US; so naturally everyone wants to go Green - especially Wall Street funds.
Yet in June 2019, the head of earth sciences at the Natural History Museum in London had already calculated that converting just the UK’s 31m vehicles to electric would require “two times the total annual world cobalt production, nearly the entire world production of neodymium, three-quarters of the world’s lithium production, and at least half of the world’s copper production during 2018.” – add the US, EU, Japan, and China to the mix and do the math. Or perhaps it’s better if you don’t.
Crypto is the inevitable future, as governments are soundly beaten by those pesky kids; or the infinite supply of finite objects is the latest mega-bubble; and/or CBDCs are coming to eat the crypto lunch – and maybe change global trade settlement patterns; and/or DeFi may do the same with traditional banking.
So, another day of so much hoo-ha. And of so much hoopla. And, yes, of so much hooey.