I spent time last night with a friend, a private investor, who looked at me and asked “what do we do next?” in an expectant way, which leads me to believe that he thinks my educated guess is going to be that much better than his own.
Well, one place not to look would have been the US equity indices. The Dow closed at 19,855.53, down 31.85 points on the day and still no closer to finding the springboard to take it above the elusive 20,000-point mark. The Nasdaq index, on the other hand, closed up 20.00 points, just 8 points away from its all-time high. But the show was stolen by the S&P 500 index, which closed perfectly unchanged at 2,268.90 points; I believe it to be the first time it has done that in over 30 years. The Dow performed the feat as recently as April 2014 but for the S&P it was indeed a rare event.
Of course there is nothing to be read into it but it is nice to have something different to talk about in a period of interregnum. Barak O’Bama yesterday gave his farewell address in Chicago where it had all begun when he launched his long-odds assault on the presidency in 2006 and which reminded us of the good times…. but not the bad. Key to his speech, other than the inevitable self-congratulatory bits, were his calls to the American people to remain vigilant while guarding their rights and the institutions of democracy. What he did not question – why would he? – is what changed and how during the course of his presidency that led the people to vote for Donald Trump.
I was reminded of the Coward Cameron’s first outing on the US rubber chicken circuit in early December in which he decried the rise of populism but plainly refused to consider his part in its rise. This, my man, is precisely what democracy is all about and when the people are telling you something, you’d be advised to “check and query” rather than to simply denounce. I keep on coming back to Bertold Brecht and his suggestion after the 1953 workers’ uprising in East Berlin that if the government doesn’t like the people, why does it not dissolve the same and elect itself a new one?
Plaudits
Whether it was George W Bush who was president during the key period of the outbreak of the global financial crisis – Lehman Brothers collapsed four months before O’Bama was inaugurated – or whether it should be O’Bama who should take the plaudits for preventing a total collapse of the financial system will remain open to debate in perpetuity. Whether one lauds O’Bama for presiding over the long recovery or whether one questions why it has taken so long to achieve un-stick speed is also a matter of opinion. What is clear is that the Donald has inherited an economy in a considerably better mood than O’Bama did. Whether he can maintain this is a different matter. Larry Summers, erstwhile Treasury secretary, current president of Harvard and eminence grise amongst observers of the US economy might have nailed it when he suggested that the country is on little more than one huge sugar high.
The World Economic Forum in Davos might not start until next Monday and just about close as Donald Trump takes the oath of office on the steps of the US Capitol but it will be interesting to see how the “old order”, the oligarchy of power and money that assembles in the Swiss resort for champagne, canapés, networking and padding out the moral high ground, deals with the arrival of the Disruptor-in-Chief. Trump is due to give his maiden press conference this evening and markets are keen to hear what he has to say, not least of all on matters fiscal. I’m sure someone, somewhere has opened a book on how often he says “amazing” and “incredible”.
If the US is on a sugar high, what about commodities? On October 24 copper was trading at just above US$4060 per tonne. By November 10, just two days after the elections it had rallied to US$ 5,600/tonne. Since then it has moved in a range of US$5,400-$5,950 and closed last night at US$5,736/tonne. So although there is much excitement about the rebound in commodity prices, there is no evidence at all that the rebound has anything at all to do with optimism tied to Trumponomics and the promise of significant investment in infrastructure. Those who declare that the rebound in post-crisis America took place because of the dynamism of the American people and need not be ascribed to the O’Bama presidency will now have to apply the same logic to the Trump White House. What’s sauce for the goose is sauce for the gander.
Handbags
I was amused to read this morning that Jeffrey Gundlach is having a bit of a punch-up with Bill Gross as to when the 30-year bull market in bonds is over. Gundlach dismisses Gross’s key level of 2.60% on the US 10-year and reckons the value to be 3.00%. I disagree with both and think the bull market dies 3.14159265…%. For heaven’s sake, who cares what the exact number is? The bull market is over when yields have hit a level which they won’t reach again within this super-cycle and twice they have been below 1.50%. Whether the Fed tightens twice, three times of four times during the coming calendar year is also irrelevant. What counts is where and when the tightening cycle ends, what the real return is at the time and what time value will be ascribed to the yield curve when that happens. In other words, at what point in time will the total return of a portfolio of bonds look as though it can offer, on a risk-adjusted basis, a sustainably superior outcome to a portfolio of equities. That is when the next bond bull market begins. The bull market ended when Funds lifted off their all-time low and when the probability of an easing returned to zero. Any other discussion is white noise being generated by a bunch of superannuated has-beens.
As for the rest of the world, it too has gone mad. A football World Cup with 48 nations? Iceland versus Senegal in Guadalajara – there will be more TV cameramen than spectators….