5^thof July 2021

Every time the Americans are not there, we tell ourselves that Europe and the rest of the world will be able to spend a real day without the influence of the cousin from across the Atlantic. And then the next day, when we look at the performances and the volumes, we say to ourselves that we would have been better off not coming and staying in front of the TV to finish watching the whole of NetFlix, a task started at the beginning of the pandemic, and to come back to business tomorrow. Especially since this week, we all already have our eyes on the FED Minutes coming out on Wednesday. And Wednesday is 48 hours away.

The employment figures

Since this Monday morning is almost officially closed, we’ll focus on analyzing Friday’s employment numbers. It is certain that everyone has, will have or will have an opinion on the subject and the consequences that this could have in the future. In fact, one of the first thoughts that one can read in some places is: “what will the FED do after these relatively strong employment figures that again leave the spectre of inflation looming”. The first reaction of some is to say: “We’ll see in the FOMC Meeting Minutes on Wednesday what the FED thinks”. Yes, of course. Except that the FOMC Meeting Minutes are the report of what the FED said almost three weeks ago at its monthly meeting. And it is unlikely that at the beginning of June, the FED was already aware of the employment figures that would be published in July.

It is well known that Powell has the ability to travel in time and that he is the modern version of Marty McFly, except that he drives into the future in a Tesla that generates its energy from household waste, making it much more ESG compatible, but still! It would seem relatively strange that the FED anticipated these figures which beat (once again) analysts’ expectations. 850,000 new jobs created against 700,000 expected is not a revolution in itself, but let’s just say that it corroborates what we have been sold for months: the US economy is recovering and even the IMF thinks that the country will be the only one in the world to have – at the end of 2021 – a growth rate higher than expected BEFORE COVID appeared in all the headlines of the financial newspapers

Analyses in all directions

In any case, if you take the time to read the financial press, you quickly realize that you are very happy with the evolution of things on the employment side and that it shows that the country – the USA – is starting up again and that growth is indeed present. We tend to reject the idea that an increase in employment could also generate higher inflation than expected. Firstly, because inflation is frowned upon and could put the lie to Powell’s plans, but also because for months, inflation due to employment was considered good inflation – as opposed to inflation caused by the explosion in commodities.

It would be nice if things stayed that way, but it is not obvious. All it takes is for everyone to suddenly realize that not only is employment coming back strongly, but wages are also rising, and things could suddenly take a different direction and a slightly different stress. It’s interesting to see how the entire financial community thinks it’s super-cool that commodities are down and how that takes away the risk of inflation that might want to gallop across the Great Plains of North Dakota. On the other hand, I am surprised that no one is paying attention to the fact that indeed, commodities are down over the last 2 months – the peak of the “wood” having been made on May 10 – but if you look over 12 months, there is always something to wonder about.

A question of perspective

If you take the time to look at performance over a longer time frame, the picture could become significantly more distressing. Pork is up 140% over 12 months. Coffee is up 50% over the same period and sugar is doing more or less the same. I’m not even talking about wheat. Over 12 months, commodities have exploded. Steel, copper are going crazy, producers of anything and everything that needs this kind of material are raising prices, but the market doesn’t care because the lumber has lost half its value. And it’s fascinating how focused we are on the price of wood and when you ask someone how many lumber futures they’ve dealt with in their life, the most common answer is zero.

However, in the last two months, I can’t even tell you how many wood experts have arrived on the market. If each one had arrived with a package of boards under his arm, the wood shortage in North America would have been solved in 48 hours.

In short, all this to say that at times, we have the feeling that we are looking at the wrong target and that we tend not to look in the right direction. And looking in the right direction can make all the difference. Try driving in England looking in the wrong direction and you’ll tell me about it. And then, speaking of telling me news, what do you think about oil exploding over the last 16 months and its influence on Powell’s transitory inflation? No, because I know it’s a sign of a healthy economy, but when my gas tank costs twice as much as it did a year ago, I’m not sure the health of the economy is my immediate concern. Transient, yes, but a concern nonetheless. Still, this week, when the Yanks get back to work and stop drinking Budweiser, we’ll be talking about inflation. What a surprise. We had a little break with the employment figures, but now we are back in business with the famous INFLATION.

A little bit of everything everywhere

This morning Asia opened with great employment numbers, but since then it’s been all downhill. Japan is down 0.6%, Hong Kong is down 0.3% and China is up 0.16% despite a services PMI that was well below expectations. As for gold, it is at $1787 and black gold is touching $75. In other words, it’s at the highest since October 2018 – October 2018 is almost as far back as prehistory after all we’ve been through since then. Beyond this basic news, we’ll note that Michael Burry continues to push the envelope by talking about a crash on a little bit of everything, but especially on “memes stocks”, like AMC or GameStop. He thinks we shouldn’t wait much longer to see the house of cards collapse. I have to say, it would be pretty cool and would set the mood for summer barbecues in the rain.

Otherwise, in the important news in the papers this morning, we can’t avoid talking about the new world record for swallowing hot dogs, as the defending champion in the USA broke his own record by ingesting 76 sausages, including bread, in 10 minutes flat. The champion said he was happy to see his fans live again, since last year it was forbidden. We are happy to know that he has FANS. On a more serious note, there is also the Chinese government that has asked DIDI to remove his app from the Apple Store. They believe that there are security flaws that could be an invasion of privacy for users. And we know how important privacy is to the Chinese government.

And the rest

We can also talk about a Bitcoin billionaire who passed away last month and allegedly left no access to his Bitcoins making them lost in the mysterious space of the Blockchain for eternity. The “experts” consider this to be good news for Bitcoin holders, since there will be fewer of them on the market. Right now, this is not striking, since Bitcoin is still around 35’000 as it has been for a week. And then we also see Branson all over the press, since he is pushing the space trip to the limit, knowing that he himself should go in a few days. Apparently space travel is going to be a big hit, as the billionaire thinks there is room for about 20 companies to go into the stratosphere. Personally, you can come and get me, but before I pay to get in there, I would have already bought an electric car!

I can’t help but end with an update on the Delta-Ex-Indian variant that seems to be taking over. For the first time in weeks, the number of infections in the US is published again, as well as the number of deaths. Biden goes on TV to say that getting vaccinated is patriotic. We are afraid that the Euro finals will be THE SUPER CONTAMINATOR of the summer, but we are going to do them anyway and there are still so many people on the side of the roads of the Tour de France screaming like oxen about guys who climb the passes at the speed of a moped running on nytromethane, guys who we will learn are doped in three months, and then we will have to look surprised. Still, the delta variant could kill us for the rest of the summer, but more likely for the fall and winter. And meanwhile, the heat wave in North America has killed hundreds of people. And no one is talking about containment.

Figures of the day

As for today’s figures, we will have the PMI for services in Europe and the Americans who are on vacation. Futures are down, but that means absolutely nothing and I recommend a lot of rest and reading for the day, as for me I’ll see you tomorrow at the same time and place for a new update on the variant delta-ex-indian numbers.

Nice day to all.

7Thomas Veillet

CIO Merion Swiss Partners