A Shot in the Dark

It’s been quite a week, hasn’t it?

Perhaps the most ostensibly Leftist version of the Democrats have seemingly secured the White House – whether by far means or foul – and yet the incumbent who was so reviled by the global chattering classes still secured an enormous swathe of votes across the country.

Though all the instant expert psephologists in the markets think they are already well on the way to pricing in the ramifications, several large question marks remain beyond the immediate lone of whether Trump’s team will be able to prove enough ballot-box fraud took place to be able to overhaul their opponents.

The larger issues revolve around just HOW red (or green) will the putative Blues turn out to be (something the more callous would put down to Biden’s retention of physical health and mental faculties) and, conversely, to what extent the GOP will hew to the type of visceral politics which Trump exploited so effectively, arguably until the deus ex machina of COVID19 disrupted the final run-in to this year’s election.

Will we therefore see a reversion to the usual Tweedledum-Tweedledee ‘bipartisanship’ – will the denizens of the ‘Swamp’ resume their normal roles, we might say – or will we see the current divisions maintained and even deepened as the pendulum swings to those wishing to substitute an Identitarian Eco-state more actively seeking monsters abroad for Donald Trump’s admittedly imperfect vision of American exceptionalism and a foreign policy eschewal of ‘nation building’ (a grim misnomer if ever there was) in favour of a more focused antagonism to the nation’s main challenger, China?

The market seems to have bet on the GOP securing a large enough proportion of the two houses of Congress to prevent the Rosa Luxemburg wing of the Democrats from exerting too much influence, and, by extension, from spending untold trillions in re-engineering much of the economy, as well as uprooting much of society. Therefore, it is assumed, instead of the government becoming the Spender of First Resort, the Federal Reserve will continue to act as Lender of Last and so would further reduce the chances of any wrenching regime change in the months to come.

Roll up your sleeves

Cutting across all this, somewhat complacent prognostication, however, has come the news that Pfizer may have a workable vaccine against COVID19, hence raising the prospect of an imminent release from semi-captivity for the peoples of the West and with it an early resumption of a much greater degree of economic ‘normality’ than had been feared would be the case.

This last is itself based upon far too much conjecture to be comfortable, and not only on the grounds of epidemiology. Some doubts have already been expressed about just how stringent are the criteria upon which to determine the ‘success’ in the various trials underway and, even if this really is  new miracle cure, few of the logistical problems associated with mass delivery have yet been fully solved.

Against this, the cynics have already been heard to say that this is largely irrelevant: that if the shot only offers a means for political face-saving and allows our leaders to escape the Lockdown Leapfrog cul-de-sac against whose terminating brick-wall they have been dashing their heads, that will indeed suffice.

Under any of these contrasting scenarios, the true constant is that the likelihood of a return to monetary sanity, to fiscal prudence, and to less intrusive government remains vanishingly slim. Thus, we should expect that the full energy of entrepreneurialism will continue to be damped, its possessors either shackled, diverted into Green New Deal wastefulness, or seduced into further rounds of Unicorn breeding.

Trending the Buck

Much has been made of late of the ‘ineffectiveness’ of monetary policy – a contention which we have argued was meaningless when much of that new money was merely a life-support payment to people being forcibly prevented from earning their own living in the accustomed manner.

What we have also tried to make clear is that however well or badly orchestrated the welfare packages, the money so created can to nothing to disguise the fact that a great deal of productive effort has been displaced, disrupted, or disbarred – some of it permanently. This means that a great deal of wealth has been lost and significant amounts of capital rendered sub-marginal at best, totally inoperative at worst.

The seemingly large increase in notional wealth being recorded on the world’s stock and bond markets should in no way be seen as compensation for this: that simply means that a surfeit of employable credit is attaching a higher price today to what may long be reduced possibilities tomorrow. That may allow those who can cash in on the rise to help themselves to a greater share of the pie today, but it does not necessarily put fruiterers, millers, or patisserie chefs to the task of preparing a bigger one with which to replace it.

One final note before we turn to a run-through of those markets, if money supply no longer matters and inflation is dead, can anyone explain not just why gold has had such a strong (if now-fading) run, but why soybeans are up a third from their August lows to what is almost a  4 ½ year high; why corn is up ~40% in that same time to its best since summer 2019, or why wheat is a quarter more expensive, at levels last seen in early 2015?

Might we also see here a reason why cotton is up 45%, aluminium 35%, tin over 40%, zinc by more than half from the spring slump so that all these industrial inputs are hitting their best levels since the first half of 2019? Would it also b involved in nickel’s 45% rebound to a one-year high, or copper’s 60% climb to erase all the losses suffered since the midpoint of 2018?

Money does still matter. It has been partly immobile but now shows signs of beginning to move, once more. Pay attention!

Market Run-through

Here we append a series of charts, each with their own attached commentary to try to give a broad overview of the ner-term market possibilities.

[Where these are drawn using proprietary charting services, they come courtesy of either tradingview.com or investing.com]