Stimulus, vaccine, earnings all create risk-on day

Companies House

It’s nice to know that Companies House is focussed on diversity and inclusivity issues. It’s just a pity that it cannot bring as many resources to check key information on directors and shareholders of the legal entities in the registers it maintains. As anyone who has read “Private Eye” will know, Companies House is a key reason why London is the global capital of money laundering. You can read more here.

Monetary Policy

I am reading Samuel Brittan’s book about the UK Treasury. It’s called something like “Steering the Economy.” He was writing at the time (1970) when there were faint stirrings of the idea that monetary policy could be used to affect the real economy. You can tell he was sceptical, but he conceded the point that if the BoE kept buying Treasury securities, eventually interest rates would go down which would result in some capital projects being approved through a drop in the hurdle rate. He pointed out that, in general, when the BoE buys gilts, the private sector actor who gets the money does not spend it, thereby increasing demand. He simply invests it in some other asset. Poor old Sam is no longer with us, but he’d have no problem explaining the “parabolic” rise in the US stockmarket in the teeth of a global pandemic.

Market Commentary

Risk on today. US GDP growing more strongly than expected (but from a reduced base).

$PINS (Pinterest) up 36%!! This counts as a value stock, by today’s standards. It’s not simply that is it trading at only 1,760 times earnings, it’s that it actually has earnings. I am thinking about loading up on out of the money calls as a safety-first way of investing in this emerging blue chip stock.

The dollar keeps going up, even though it seems a sure sell. I guess this is basically the case with all consensus directional bets. Everyone knows that US interest rates are heading down, and will almost certainly become negative, that US inflation is going to rip, that the US trade deficit is humongous and getting bigger, that Biden will reverse most of Trumps mercantile tariffs, and worsen that deficit, that the US Treasury is going to keep creating more of the so-called “world’s only safe asset” to the point where every foreign bank can’t take any more. Well, that’s the bear case. The bull case is that the dollar may look like a shitty currency, but wait until see the alternatives!

Anyway, it’s too hard to call, but somehow I think eventually we’re going to see the dollar (DX futures) heading south.

Precious metals plug

Some gold and silver miners catching a bid today: $AGI up nearly 13% on results, $AEM (a much bigger operation) up 3.4%. There is talk about China offering a gold-backed digital currency. The central banks have been looking into digital currency issuance for a long time, as they are running out of ammunition, even having used “unconventional” monetary policy. A digital currency is the perfect way of bypassing the problem of a collapse of the velocity of circulation: a digital currency could be time limited. If every citizen gets $5,000 in a digital wallet, created out of thin air by the Fed they are likely to spend it. Especially if they are told that it will disappear into /dev/nul at the stroke of midnight on 31 Dec.

People seem to be getting more interested in silver, as it is cheap, relative to gold, and it’s in relatively high demand because of its use in solar panels. It is also being picked up by various hedge funds and investors, such as Berkshire Hathaway. Precious metals, as a proportion of the universe of securities, is a tiny part. Once demand from industrial users and investors starts to move together, it seems perfectly possible that a rapid rise could be observed. It also appears that gold has been classified as a Tier 1 asset for banks to hold: the only “fully safe” asset other than Treasuries.

Gold has performed remarkably well as an asset, over many years.

Some gold miners pay a decent dividend

Comments !