Rabo: “There Is No Point In Standing In The Way Of This Market: Let The 20s Roar!”
By Michael Every of Rabobank
I am Markets, Hear Me Roar
I’ve already recently pointed out several times that “The Roaring 20s” is a terrible Great Gatsby-and Great Leader-laden analogy for our current decade, and that anyone adopting this as a label can’t count to “30s”. Yet who needs to count anything but money, right? As that great bright torch moving across a great dark wall, Bloomberg, summarizes it: “An Everything Rally as Real Yields Fall”. And so Roaring we all are:
I am markets, hear me roar; In numbers too big to ignore
And I know too much to go back an’ pretend; ‘Cause I’ve heard it all before
And I’ve been down there on the floor; No one’s ever gonna keep me down again
Oh yes, I am not wise; it’s no wisdom born of no pain
Yes, I’ve paid no price; But look how much I gained
If I have to, I can do anything
I am strong (Strong); I am invincible (Invincible)
I am markets
- Genocide accusations: ROAR!
- Jack Ma turns up after months of absence to give a short speech about rural poverty rather than his business, which sounds like a self-criticism session: ROAR!
- China puts sanctions on key ex-Trump officials AND their immediate families(!), and during President Biden’s inauguration speech, which is a huge protocol breach: ROAR!
- China-hands like Bill Bishop point out these sanctions kill any chance to work as a lobbyist in DC (which Trump had just allowed by revoking his own ban), and that this is a message from Beijing – play by our rules or lose your income. So either détente or decoupling: ROAR!
- The Chinese embassy in the US has its Twitter account locked over a post it made about Uighurs, and is told it has to delete it to regain access: ROAR!
- Bloomberg says “for all of China’s spending to boost domestic chipmaking, the industry’s traditional heartlands –Taiwan, South Korea and the US– are the ones getting further ahead.”: ROAR!
- The South China Morning Post explains a Chinese defence law introduced 1 January “By providing legal support for future overseas adventurism,…underlines Beijing’s intent to be a more activist military power and expands reasons it might project its power abroad – a change that could shake up global politics”: ROAR!
- No sign at all of armed or mass protests at President Biden’s inauguration, but no sign of an end to the US “uncivil war”, as he called it (on which, see here from Philip Marey): ROAR!
- President Biden uses executive orders to reverse Trump policies, rejoining the WHO (where the US may clash with China?), and the Paris Climate Accord (with its carbon-cutting pledges – with no guarantee a growth-compensating Green New Deal will pass Congress): ROAR!
- Saturday Night Live comedian Alec Baldwin (who now can’t do Trump anymore) also quits Twitter after comparing it to a “party where everyone is screaming”: ROAR!
- US Covid deaths top 400,000, exceeding US deaths in WW2, as New York warns of shortages in vaccine, as the UK sees its highest daily virus death toll yet (1,820) and its hospitals are a “war zone”: ROAR!
- The BOE’s new bank stress tests consider “entrenched societal change on Covid-19”, including a 37% GDP contraction 2020-22, no flights or tourism, more global protectionism, working from home for years, no eating out, and weak commercial and residential property sectors: ROAR!
- The Netherlands considers instituting the first curfew since WW2 and halting all flights from the UK, South Africa and South America from tomorrow: ROAR!
- Germany will be locked down until 14 February: ROAR!
- France is closing all cafes and restaurants until April 6: SACRE BLUE-OAR!
True, there are some good numbers out there, which shouldn’t be overlooked: it is mostly all about liquidity, but not ALL about liquidity. South Korean January 1-20 exports to China were up 18.6% y/y. Aussie jobs were also up 50K, well over 600K in US payrolls terms, and apparently takes the jobs market close to its pre-Covid peak….if one overlooks all the state jobs support schemes.
Meanwhile in Europe it’s ECB day. Much of the focus is not going to be on the actual decision itself, but on the Bloomberg story that the Bank has already decided to do what seasoned/cynical observers had long deduced – adopt a policy of Yield Curve Control without saying so. In this case, spread targets for peripheral government bonds over the core: a Rubicon-crossing monetary policy decision made with near-total opacity. From a Roaring 20s perspective, that is very bullish for those peripherals. Market risk effectively ceases to exist as long as the ECB has your back.
However, it also raises a flurry of questions. Who made this decision? On what authority? At what spread level? When will/can this be adjusted? And what if a Eurozone country elects a populist government adopting fiscal expansion? Would the ECB’s spread-targeting mechanism allow this? If so, or if not, more than one Rubicon is surely also being crossed.
For now, there is no point in standing in the way of this market: let the 20s Roar! However, for your own safety, learn how to count to “30s”. You’d be roaring mad not to.
Thu, 01/21/2021 – 09:14