30th of June 2021

I’m not going to replay yesterday’s movie, but let’s just say that the world’s stock markets are still in the same mood. We’re waiting for Friday’s figures to see if the average American has decided to go back to work, or if he’s waiting for the end of the summer, and in the meantime, we’re going from record to record, noting the euphoria that surrounds us. Yesterday it was the consumer confidence that showed that humans had totally forgotten about the pandemic, confidence that was back to the levels of the time when we thought that COVID was just a flu. A big flu, but a flu nonetheless.

S&P and Nasdaq at the top, but homeopathically so

The Dow Jones is still lagging, but the S&P and Nasdaq continue to break records. So, it’s a 0.01% hit, but it still counts on the charts. Yesterday we were expecting consumer confidence to be at 120 and it came out above 127, which brings us back to March of last year, just before the free fall was practiced and just before the governments invented stimulus packages. As far as Wall Street is concerned, COVID is definitely a thing of the past. Confidence is there and it’s been a long time since we beat the levels that were ours when we discovered that the pangolin was not a prehistoric animal that disappeared 100 million years ago, but that it could be found quite easily under number 56 on the menu of Chinese restaurants in Whuan and that it went perfectly with a 38, steamed bat dumplings and Cantonese rice.

So here we are, back where we were 16 months ago, and nothing seems to be able to stop the global stock market from moving forward. Yet, when you look at the consumer confidence numbers and the employment levels today and 16 months ago, there is still a “hole” of 10 million people, 10 million people who have lost their jobs and still haven’t found them. Or who don’t want it back, because if you believe what you hear in the US, the problem is not so much that there are no jobs, but rather that nobody wants the jobs that are being created. Restaurants have drastically increased the wage level, but no one wants the jobs. Well, on the other hand, when we look at the numbers, we are told that there are 10 million “new traders” whether in stocks or cryptos. If it is, it is the same. Still, as we wait for Friday’s employment numbers, it’s fun and all is well, even if the bullish performance is homeopathic, as volatility is getting closer and closer to total immobility, stress is nil and everyone is confident. Fear is no longer an option since the FED and governments invented the permanent artificial rise.

The FED, OPEC and oil

Despite the unshakeable confidence that is keeping us alive at the moment, it is worth noting that anyone with even the slightest connection to the FED is taking advantage of this to get their moment in the sun. Yesterday it was the turn of Christopher Waller, one of the governors of the FED who said that he could not rule out the possibility of the FED raising rates in 2022. For that to happen, of course, inflation would have to become more sustainable than transitory or employment would have to shrink in such a way that the risks of more than transitory inflation would increase substantially. In short, he doesn’t know, but he can’t rule out the possibility that one day he will know and that he will actually have something to say.

In any case, there is still one thing that bothers us, and that is the duration of this transitory inflation. Yes, because for months now, Mr. Powell has been motivating us to explain that there will be a transitional inflation peak and then everything will return to normal. But it has never been specified how long this transitional period will last. What we do know today, and this is concrete, not forecasts, is that the US housing market has risen by 14% in one year. Fourteen percent is quite a bit. We know that the price of meat has exploded in the last year, that wood has risen 100% – it has calmed down, but it is still up 100% over 12 months. We know that grain is more expensive, that the price of a quarter of a pig and a live herd has gone up. And we also know that used car prices are breaking records. But all this will only be transitory. But how transitory? Transitional one month or transitional 3 years? No, because it’s not quite the same thing. I suggest we talk about it again this fall.

Asia on the rise by a whisker

According to the morning media, Asia is up a few points because the Nasdaq finished at the top and US consumer confidence is at the top. However, when we look at the problems of COVID in Asia, we can say that unless we export to the US, Asia will not necessarily benefit from this excess of confidence of the American consumer. And with many Chinese ports paralyzed by waves of contamination, one wonders if all this optimism will not be transferred to local US production – what is local US production remains to be seen. This morning the Nikkei is up 0.01% and China is up 0.24%. You can feel all the motivation behind it.

On the gold side, it’s beyond quiet as nothing is happening. It’s like a surfing competition on Lake Geneva, hoping for real waves one day. As for oil, remember that yesterday crude oil was going down because we were afraid of the next OPEC meeting which could have possibly reopened the production tap and lowered crude oil prices. The thinking was fair enough, except that OPEC decided to postpone their meeting due to COVID. If someone can tell them that there is a fairly modern thing called video conferencing. But I think they still prefer the quiet luxury of Vienna’s 5-star hotels, they haven’t had access to Viennese pastries for too long, so they might as well keep them warm. If the Bitcoin is still hovering around 35,000 and nothing is going on, that’s fine too.

Morning salad

The news of the day is still thin this morning. We had Warren Buffet who thinks that COVID is not yet completely over and that the longer term consequences on small companies are not well understood. He recognizes that the big ones have done very well and continue to do so, but he points out the difficulty of predicting the future on this point. The market doesn’t give a damn about small companies, it is much more excited by the number of companies that have passed the 1’000 billion market capitalization mark. Yesterday DIDI, the Chinese UBER, was priced at $14 per share, the company should start trading this Wednesday and everyone seems hyper-bullish on the subject. It’s almost terrifying because it’s so unanimous. And then the spread of the Delta variant is worrying in all corners of Europe, so much so that this moron Minister of Health in France is already talking about reconfinement in September and is pointing the finger at people who would not be vaccinated as vectors of the spread. In any case, if the markets seem to have recovered their pre-pandemic means, for the rest it doesn’t seem so obvious.

As for the economic figures, we will have the GDP in England, the Consumer Spending in France, as well as the CPI. We will also note that France’s debt has reached twice the market capitalization of Amazon. We look forward to seeing what solutions will be proposed by May next year. There will also be the KOF in Switzerland and employment in Germany – in the US, there will be the Chicago PMI, the ADP employment figures, while waiting for the NFP and oil inventories which have not been postponed… Currently the futures are up 0.11%.

Wish you a very good day.

Thomas Veillet

CIO Merion Swiss Partners