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Wednesday, Dec 16

Compared to most autocratic leaders, President Trump hardly fits the mould, but he did teach a valuable lesson to other would be dictators by failing to respond to his citizens’ needs and losing an election he could have easily won. That is the view of Inferential Focus, which in today’s Macro Briefing, explains why the coronavirus pandemic marked the beginning of the end for the popularity of autocratic leaders, why it leaves them with a tricky dilemma, what it means for investors – and what it could also mean for corporate autocrats and big tech. Savings rates also shifted thanks to the pandemic, and Capital Economics investigates where increased spending could supercharge the economic recovery, while Cornerstone Macro outlines how equity investors should respond to the next leg of the revival in value stocks as the world gets back to normal. Elsewhere, Cantillon Consulting sounds a warning over the Chinese economic miracle and Heteronomics explain why the pandemic has reinforced UK productivity distortion and is likely to trigger further action from the Bank of England. 
  1. COVID-19 geopolitics Inferential Focus

    1. The beginning of the end for popularity of autocratic leaders

    Autocratic leaders around the world wasted no time in using the coronavirus pandemic to secure their power bases and wealth. But as a fascinating report from Inference Focus points out the pandemic, along with the resulting economic slump, has seen citizens worldwide demand reform and the elimination of perceived injustices. The firm lays out the choices for such leaders – the so-called authoritarian dilemma – explaining the implications for investors in an increasingly volatile world, and, crucially, asks whether the new perspective for the political autocrat applies to the corporate autocrats in the boardroom.
  2. Economic recovery savings rates Capital Economics

    2. Will households spend the extra money they have saved?

    Savings rates in the developed world have soared this year as household spending fell sharply due to lockdowns and generous government programmes supported incomes. As Vicky Redwood at Capital Economics notes, experience of previous crises suggest those savings rates are not likely to remain permanently higher. Indeed, as the vaccine arrives and economies open up, she assesses the chances that households will spend the cash they accumulated, and whether the saving rate could fall below its “normal” level for a while, supercharging the economy, and crucially, which countries and regions are likely to benefit most.
  3. equity rotation value stocks Cornerstone Macro

    3. What does the next leg of the value story look like?

    The surge in performance by deep value stocks since the beginning of November has been by any measure impressive, says Michael Kantrowitz at Cornerstone Macro. He says while there is nothing new about sharp recoveries in deep value stocks, what is unique about this value move is that it is taking place well after the bottom in economic and risk data. So, according to Kantrowitz, while this move in deep value stocks is unique, that does not mean that it will not follow a similar roadmap to historical recoveries. Much of Kantrowitz’s recent strategy work has focussed how equity investors can be better prepared for the next leg of the recovery, which a much more nuanced and selective approach.
  4. China debt defaults supply chains Cantillon Consulting

    4. China: Ship of fools

    Sean Corrigan at Cantillon Consulting  issues a warning to investors against getting swept away by China’s seemingly miraculous recovery from the effects of the coronavirus. Despite the “looming madness” of President’s Xi’s new five year plan and the decarbonisation promised along with China’s new dual circuit growth story, China remains a mercantile economy. And the pandemic has been a dream for export-reliant China, which has seen demand for its goods pick up as the costs of raw materials have slumped. But Corrigan sees trouble ahead – not just by the inflation and disruption caused by overwhelmed supply chains and shipping channels, but by the potential blockage of China’s credit channels and the prospect that tougher enforcement could produce the country’s own Lehman moment.
  5. Productivity UK Heteronomics

    5. UK productivity pains intensify

    Conventional macroeconomics treats productivity with a disgraceful disdain argues Philp Rush at Heteronomics. By assuming that all factors of production are the same, it doesn’t matter where resources are allocated as it doesn’t make much difference to the productive potential, he says. That, according to Rush, allows for some nice stable model properties, but it is a ludicrous fabrication. Indeed, he points out why seemingly encouraging UK unemployment data is not all that it seems, and why investors should look focus more on productivity in forecasting inflation and future policy action for the Bank of England.