Economic Outlook

“The policies of the government in power, and the proclivities of the current prime minister, are not particularly oriented towards the hard work of generating economic growth, and that can make things difficult for the Department of Finance.”
David Dodge, Former head of the Bank of Canada

Blain’s Morning Porridge – Jan 7th 2021: Really?

“There is nothing quite so fanatical as an American telling you what he believes you should believe.”

Well… that was an interesting afternoon..

As bloody revolutions go… aside from one regrettable death; the Storming of the Capitol was a bit of damp squib. It didn’t pass muster as a coup, and wasn’t even a very convincing insurrection. But, it will go down in history as the day the Republican Party woke up – and that’s probably a darn good thing for everybody. It was, hopefully, the day Americans saw Donald Trump for what he uselessly is.

That’s the way markets are thinking – looking past the bluster they see it as positive for reflation, stocks and anticipating growth as Treasuries rose. After Georgia and Confirmation, Joe Biden will be the next president with a working mandate and majority to get things done. Yay! Finally…

There will be further increases in budget spending – which will be required in the face of the second pandemic threat. There will be regulation of big tech – but that won’t undo the ongoing tech revolution which will continue to deliver stellar returns and make our lives better and different. Biden’s new administration will have massive challenges to address – not least in the infrastructure promises Trump failed to deliver, but in terms of stopping the social decay blighting the urban hubs in California, New York and Chicago. Education, Wealth and Equality will be brought to the fore. There will be much talk about taxing the rich – which is not a bad idea… Rebuilding trust in politics will be a massive ask…CLICK for complete article

Here Are The Full “Blue Wave” Implications For Politics, Markets And The Economy

The Democrats are on the verge of winning the two Georgia Senate elections, according to news agencies as multiple sources have called the race for Raphael Warnock while Decision Desk HQ has called the race for Ossoff.

With these victories, Democrats would gain full control of Congress and the White House, which Goldman writes would “lead to greater fiscal stimulus in the near-term. Later in 2021, we would expect incremental increases in taxes to finance similar amounts of new spending, though both would be a fraction of what the Biden campaign proposed.” This means that, at least for the next two years, the US is set to descend into that circle of monetary hell reserved for nations which openly engage in helicopter money (everyone knows what happens after).

In addition, BofA adds that Dems will have control over the Presidential appointment confirmations– including appointments to regulatory positions, cabinet and judicial positions. But perhaps most importantly for markets, the Dem sweep clears the way for the use of reconciliation to set spending and tax levels without threat of filibuster. CLICK for complete article

Market Correction: Could We Kick off 2021 With a “Vicious” 10-15% Pullback?

Stop me if you’ve heard this one before: the stock market looks pretty frothy going into the new year, and it’s coming in hot, perhaps too hot. Given the rally we’ve had since those depths of March, it definitely feels as though we’re overdue for another vicious market correction in excess of 10%.

Still, there are no guarantees that the froth will be cut off this market anytime soon. Although the folks at CFRA did recently warn investors to brace themselves, as they thought the stock market was “vulnerable to a pullback” over the near-term. CFRA points out that recovery expectations are a tad on the high side, which could set the stage for a first-quarter pullback. CLICK for complete article

Why There Is Literally No “Cash On The Sidelines.”

In the later stages of a bull market advance, the financial media and Wall Street analysts start seeking out rationalizations to support their bullish views. One common refrain is “there are trillions of dollars in cash sitting on the sidelines just waiting to come into the market.” 

For example, Barron’s recently penned the following:

“There is record amounts of cash sitting in checking accounts of American households—and for optimistic investors, it’s just one more reason the stock market should keep pushing higher. 

Yahoo! Finance also jumped on the claim:

“It should also come as no surprise that there’s never been so much cash sitting on the sidelines — nearly $5 trillion, as a matter of fact. This is significantly above the record $3.8 trillion in cash set back in January 2009 during the financial crisis!”

McKinsey & Co also published the following graphic.

cash on the sidelines, Why There Is Literally No “Cash On The Sidelines.”

See. There are just tons of “cash on the sidelines” waiting to flow into the market.

Except there isn’t. CLICK for complete article

“The professional class of politicians, media people, scientists and credentialed chatterers care about business in the abstract—“small-business bankruptcies” concern them; they have a sense some people will lose livelihoods. But they have no particular heart for them. They never betray any appreciation of the romance of opening a place and being your own boss and offering a good product and being part of the town and being a success. They don’t understand the sacrifice it takes. Or that the shuttering of a store is, literally, the death of a dream.”

Peggy Noonan, WSJ columnist