We ended the summer by saying that – barring another disastrous, COVID19-inspired, mass governmental embargo on everyday economic activity – the miners, makers, movers, and merchants of the things we need to run our lives when we are not scrolling through Instagram or pretending to pay attention to a yet another pointless Zoom conference would begin to make up ground lost in lockdown to the providers of such diversions. State interference would henceforth take other, more chronic forms of hindrance: tending deliberately to boost demand while making its satisfaction progressively more difficult. So far – broadly speaking – so good.
The ink has not even dried on the US ballot papers (!) but the Market already thinks it knows what this will all mean. And then there’s Pfizer’s vaccine announcement – perhaps similarly preliminary in nature – but, hey, the Herd will always take every silver lining it can find. Some of the themes we touched upon at the end of the Summer are still in play: Japan has been attracting money, non-oil commodities are rallying, gold has lost some lustre, bond yields are creeping higher, and Value may just be topping out at last v Growth.
If we compare like with like, we find that the semi-mythical ‘equity risk premium’ may not be quite the yardstick it’s made out to be. In fact, the right sort of bonds have proven every bit as rewarding as stock, over the years and it’s cheap to bet they might do so again
Markets have paradoxically both been on edge – and in the throes of euphoria – since the repo shock in mid-September, being at the same time alarmed and yet strangely reassured by the Fed’s frantic backpedalling and the $400+ billion boost to its balance sheet which this entailed. Extreme levels of overstretch are everywhere apparent.