Happy new year! I’m sure readers will be busy today, not least with trying to figure out what might happen next with the dreary coronavirus situation. As I’ve mentioned before in this blog I keep a close watch on the excellent UK government coronavirus dashboard.
In particular, the geographical mapping is fascinating but also horrifying. The great purple patches of high prevalence test results are now monster-blob style working their way out from Kent and Essex throughout England. I live in the furthest corner of the South East, in the New Forest, and it’s absolutely creeping towards us although the prevalence is much, much lower. What I wonder is what on earth the government can do next, except perhaps shut all schools and universities for a few months. In my neck of woods, we’ve been in effect in lockdown lite for months now (since early November in truth) and yet the new mutant virus is spreading inexorably. The Times this morning floats various ideas about what can be done next – curfews, forcibly stop traveling, masks everywhere – but I can’t for the life of me see that these will make that much difference.
If the new mutation adds 0.7 to the R value, then in effect you need to get the ‘original pre variant; R number down to around 0.3 or 0.4 which I’m not sure we have ever done. It would take some extraordinary measures to freeze society which I’m not sure those in government are really willing to take. By this I mean not just shutting schools but factories, most supermarkets, and barricades on roads. I can see this kind of freeze pushing the numbers down but if I’m honest I really can’t see that working in the UK. Anyway, this all a meandering preamble to suggest that readers should prepare themselves for a uniquely grim next two months. If the variant spreads to Europe and the USA, then I think we are in for a very rough ride indeed. My ‘speculative punt’ is that at some stage between Jan 2021 and May 2021 we could see the S&P 500 dip below 3200 if the variant makes it stateside and the FTSE 100 below 6000. But after this miserable start, I’d be much more aggressively bullish again.
Anyway, back in macro land, I have two charts for readers today. The first is from the excellent Mark Mahaffey who writes the Hindesight Dividend UK Letter. You can find out more about this illuminating monthly read HERE. Thelast issue for December, released last week, features this amazing chart. It puts the sheer scale of central bank intervention into some historic context. QE4 is revealed for what it is – an absolutely huge intervention.
And if one follows my slightly dismal logic from above, I think we could see even MORE intervention in Q1 if markets are spooked by the new variant. I’m sure that investment hawks like Mark reckon it can’t get much worse – in terms of central bank activism – but I think we are only seeing just the beginnings of a new paradigm of intervention. The next big turning point (not imminent in my view) is the advent of central bank e-money accounts for all citizens.
I thought it is also worth featuring the table below which shows returns from S&P Dow Jones massive equity markets database for 2020. I have merged country by country returns from developed markets into emerging markets and then rank-ordered each national market for the full year 2020 numbers.
Some surprising results emerge when we look at this table in some depth.
Who would have thought that Korea and Denmark would emerge at the top, followed not too far behind by Sweden, and the Netherlands (both of which have been more lockdown sceptic in their virus containment policies)? Also, an overall a 14% return in 2020 for all markets isn’t half bad!!
Turning to the classroom dunces, I’m surprised by the following factoid – Irish stocks advanced 10% but UK stocks in the S&P Dow Jones BMI index fell nearly 12%. Given that both countries are both closely tied to each other and share large parts of the same economy, this 22% discrepancy looks mighty revealing. Greece has done a great job of containing the virus, but its markets are still down 13%. Then again, the virus wasn’t the only story of 202 for investors. The other revealing anomaly is the near 10% decline in Indonesian stocks.
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