The battle for the dignity of real moneyHamish Risk | December 17, 2020
Gold bugs and cryptocurrency evangelists could argue all day about what makes money, well, money, but for now most investors are going with fiat currency. In today’s Macro Briefing, Exante Data highlights what makes a good one and sets out the madness of just relying on one. Of course, one thing is for certain: inflation is not a currencies friend, and Economic Perspectives explains why bondholders should also fear its return. Liberum plays down the chances of a resurgence in mortgage-driven price pressure, however, while TMI Data Science reports on a fall in vaccine hesitancy and TS Lombard lays out the big questions for investors in the year ahead.
Cryptocurrencies Fiat currencies Inflation Exante Data
1. What is good money?What constitutes “good money” is a moveable feast according to the latest research from Jens Nordvig at Exante Data, and one that needs constant monitoring. Sure, it’s obvious what constitutes “bad money”, he says – you just have to look at what hyperinflation has done to Venezuela’s; and there are some that reject fiat currencies entirely in favour of the sunlit uplands of gold and bitcoin. But for most, as Nordvig notes, good money is that which enables investors to retain their purchasing power, and that is not just about inflation – it means ensuring that nominal interest rates can compensate for any rising price pressures. That is the lesson from the last two decades, says Nordvig, and why in a world of historically large fiscal deficits and increasingly experimental monetary policy, holding a portfolio with just one type of money, such as dollars, is madness. Nordvig details in the report what he thinks currently constitutes the best form of money.
Debt acceleration economic growth Inflation Economic Perspectives
2. Neither a borrower nor a lender beCrisis-inspired policy responses have energised global credit growth, steepened yield curves and flattened credit spreads, according to Dr Peter Warburton at Economic Perspectives, to produce one of the most powerful debt accelerations in the past 25 years. In his firm’s latest Credit Perspectives report (Always a must read here at Substantive) Warburton explains where the growth has been strongest and where the risks lie. For now, says Warburton, risk tolerance is high and all systems are go but he warns a powerful nominal recovery is required to keep loans whole, and he explains why bondholders are looking anxiously over their shoulders, rightly fearing a resurgence of inflation.
US economy US housing recovery Liberum
3. Don’t wait for the mortgage boomAs we highlighted earlier this week, an 18-year property cycle dating back to 1800 is one reason that some have faith in the medium-prospects for the US economy and are wary of building inflationary pressures. Indeed, Jaochim Klement at Liberum says with banks unwilling to lend in a low-interest rate environment it could be that mortgage lending is the one channel that remains open, allowing households to access to cheap cash and fuelling consumption and inflationary pressures. For Klement, however, the current extreme US monetary stance has rendered that channel, and hence that cycle, redundant. So, unlike the aftermath of previous crises a US mortgage refinancing boom and subsequent resurgence in consumption is unlikely, he says.
South Korea Vaccines TMI Data Science
4. The vaccine hesitancy narrative and South Korea’s second waveTMI Data Science is an alternative data provider utilizing Natural Language Processing to build leading indicators, forecasts and trading strategies via unstructured data sourced from the global financial, trade and traditional media across a wide array of asset classes. TMI’s Elan Gore has released a couple of salient notes for investors looking to navigate the rollout of Covid-19 vaccinations. In the first, there is good news for those hoping for a swift economic recovery as he highlights how TMI’s text-mining has seen notably improving global sentiment around Covid-19 vaccines in recent weeks despite a wave of media reporting on vaccine hesitancy earlier in the month. The second focusses on Korea, where increasing concerns over the strength of KRW and a fresh Covid-19 outbreak appear to warrant some caution on the Kospi, which has been the stand-out performer in the second half of 2020.
Global recovery Inflation vaccine rollouts TS Lombard
5. January MacroFest – Looking through the recovery: what is normal anyway?An extraordinary year has triggered big changes in the way everyone works, and TS Lombard is holding a two-day online festival of ideas: the TS Lombard MacroFest to explore the economic recovery, and the new risks investors need to worry about next year and beyond. The event is split over two January afternoons (2.5 hours each), and our buyside subscribers can register for each day individually by clicking the following links here, 12th of January and 13th of January. The sessions will explore whether everything will get back to normal next year, and what that normal means anyway. Among many questions the firm will address across the two sessions will be whether 2021 will start a re-run of the 20th century’s roaring twenties, whether easy fiscal policy will survive the recovery, and whether the consensus forecast for a falling dollar is likely to trigger a fresh round of currency wars. As a preview to the some of the agenda, TS Lombard published a note this week, Risks to 2021 – Vintage Goldilocks. TSL write that while post-Covid recovery has turned them more bullish – with a recovery also being the consensus – they’ve taken the time to stress test this view, warning against the over exuberance of expectations and highlighting the 3 biggest risks facing investors next year.