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The Mega Marshall Plan (COVID)

Updated: Oct 31, 2023

As still many scratch their head on a rallying market, Its not all beta; just look at the DOW play catch-up. BOEING +50% and JPM +14%. Good to see more finally connecting the dots with real rates being forced down and this making Fixed income become somewhat useless as a safe haven.


Gosh I wonder where that asset allocation ends up going?! Now I see Bloomberg posted a chart showing redemptions from Blackrock's iShares Gold Trust, managing $24 bn (the 2nd largest ETF linked to gold). Investors pulled money for the first time in two months at the fastest pace since mid-March. That probably sets up a buying opportunity in next couple of months!


ANYWAY, THIS GAME AS “AJ” SAYS IS ALL ABOUT SKATING TO WHERE THE PUCK IS GOING NOT WHERE IT IS! So......

ITS STILL ALL ABOUT STIMULUS REALITY;  MKTS WILL RLLY UNTIL THE FREE DRUGS DRIP COMES OUT....


The COVID response has so far cost US3.4trillion, on its way to likely US6 trillion+. For some historical perspective; the WW2 Marshall Plan rebuilt roads, built new roads, motorways, rebuilt bridges, built new bridges, airports and started FIAT and factories across Europe in response to 6 years (and 20 years before it – 1929 crash/WWI) of war.

Let’s say that WW2 was much worse than COVID.  


The Marshall Plan cost $12bn, in todays dollars that is $190bn or 46x LESS than COVID on its way to eighty times less than the COVID response without building any bridges, roads, airports or renewing anything.


The COVID plan has been $3.4 trillion (just so far) of transfer payments. Investments boost productivity in the future. Transfer payments depress productivity. Prior to COVID productivity was close to zero. COVID has been funded by MMT/printing money; $4trillion rise in Fed balance sheet. Fiscal and monetary stimulus at maximum in US has never happened in 250 years.


The impact is a weakening in USD and TSYs. There is no point in worrying about a Europe recession; Europe are now all-in after Germany fought against the Weimar Republic for decade, now they have acquiesced. Trump’s attack on China was all bark and no bite.

Old habits will die hard. Greed vs Fear, and repeated underperformance and losses will force quants, retail and smart beta to change. Tomorrow morning they have no reason to change.

The market will crash when the Fed takes out the drip or stops the free drugs.. The merest twinkle in the eye of the temptation of a thought of taking away these would literally crash the stock market. The Fed will not do it especially considering the fact that it foolishly welcomes a weak dollar and higher inflation.


The next unknown unknown / macroeconomic risk is January 2021 when we will experience a brand new jobs recession; companies who have been kept alive by government money and stay-at-home will lay workers off, vacate commercial real estate. At this point the Fed will double down again and again and that is the unbreakable path. To the doubters; 10 years of tech melt up, followed by a 2019 melt up when the Fed pivoted followed by a truly parabolic melt up on COVID which provided all-encompassing validation for tech regardless of price. Higher yields begins to change this as does the end of lockdown.


As to broader perspectives; COVID has ushered in a global social rejection of China. 2 years of trade wars partly driven by technology. The world of Corona Socialism=the end of globalization likely, in my view this leads to one global world becoming 2 or maybe 3 worlds; The US, China and Europe each with its own ref bond market (ECB, TSYs, RMB bonds). Note US and Euro bonds yield 0% to 80bps vs 3% for China. In a world where supply chains have been perfectly, literally perfectly optimized, a shift in global politics will change this perfect tech relationship (an iPhone contains just-in-time parts from 32 countries).


The new Cold War, not between the US and Russia, although Russia is watching and has unfinished business, is between the US and China and the war will be weighed over technology. Technology is the battlefield. Reasonable rule of thumb is do not be long the battlefield, or be very selective!


There are $14trillion long negative yields driving allocations into growth which is technology. Ergo the world is long a battlefield and the exits are much smaller than the entry orifice.

Technology is essentially semis and software. Semis pertains heavily to the China discussion above. Software is a subscription model; the crisis has had no impact perhaps positive impact on software but this year’s bookings are next years renewals. I contend that software companies will miss expectations all through 2021 or sooner while nominal GDP rises.


Thus tech has an earnings, revenue, valuation, discounted cash flow (yield) and positioning problem. Positioning and valuation are beyond any precedent conceivable or manageable.


Please see our disclaimer here: https://www.nutstuff.co.uk/disclaimer

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