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Market Commentary

Bring Back Gerald Ford

By November 2, 2021April 26th, 2024No Comments

It is a real potpourri of news this month, tinged with some sadness at the end.

In the last month the US stock market edged up to new all-time highs again.  Why is this happening?  There is never a single cause, and it is typically pointless trying to figure this out in any detailed way.  Nonetheless, there was one very significant development for the post-Covid recovery, the development by Merck of molnupiravir, to be taken after patients develop an infection.

Of the 775 patients in the study, eight deaths were recorded in the placebo group. None of the patients taking the drug died. Hospitalisations halved, from 14.1% in placebo patients to 7.3% in the non-placebo group.  Pfizer, Shionogi and Gilead also have oral treatments in development.

This development has great potential to fully re-open the global economy, and boost all-round confidence.

The UK’s FTSE 100 index continues to hold above 7200, but there was certainly not sufficient broadly-based confidence to push it any higher, the all-time high being way back in 2018.  The UK Budget had no impact, and many might have found juvenile his playing with prosecco taxes to grab silly headlines.

No such silliness with electric carmaker Tesla.  Last week its market value went up through $1 trillion, based on sales of about 500,000 cars.  That’s £2m a car.  Hmmm.  In sharp contrast, Toyota and Volkswagen sold nearly 10 million cars in 2020.  But their market values are just $145bn and $242bn respectively.  Nope, nothing silly at all.

One of the last months media obsessions has been stagflation and the parallel with the 1970s.  This isn’t really about inflation.  It is about how central banks respond to an already widely-predicted uptick in inflation, and, in turn, how markets respond to the central banks action.

The central banks have been on the hook, and procrastinated, for years.  Now rising inflation can act as the useful idiot for them to raise interest rates.

This should have been done years ago, as rates have been kept at emergency levels long after the fire went out (roughly a decade ago), and has encouraged directors lining their pockets financial engineering, a bigger wealth gap, and pushed the US stock market and global bonds to levels which are extremely dangerous, not just for investors, but for the stability of economies in general.  The mountains of dodgy debt, built on central bank inaction, are ripe for collapse.

Many of us have pondered how central bankers are able to dig themselves out of this hole of their own making.  Now rising inflation provides them with the cover.  They can blame rising inflation for the debt-fuelled collapse of many businesses; and rising inflation can be blamed on COVID.  Neat.

Talking of the 1970s, do you remember “long queues and fights and garages”.  Sound familiar?  Yet there is no comparison to today, when Ministers have to go on the radio to apologise for shortages in children’s toys; and a child psychologist features on the Today radio show to explain how parents should break the news to their under-10s.  In Sainsburys you can get 24 varieties of lettuce, 18 of which are in plastic bags. We are horribly pampered, and invariably expect someone else to deal with the most mundane difficulties.

Not so in 1974.  Gerald Ford was having none of it.  Grow your own!  And much other practical advice straight from the US President, who sounded more like President Xi than the verbally flatulent Trump.  Here is the speech in full – it really is very good.

Returning to the opening quotation from Albert Einstein, we have previously talked about Facebook and the likelihood of it being broken up.  Last week Frances Haugen, the American Facebook whistleblower, gave evidence to a UK Parliamentary committee.

If you want to understand how Facebook works, and what is worryingly wrong with it, this is superb watching on YouTube.  She is excellent at breaking down complex techie issues and helping the rest of us understand.

Finally, a sad note.  Over the last month you heard much of Sir David Amess, tragically murdered as he went about his constituency business.  I knew nothing of Sir David before we met on a zoom call in the Spring, working together on one of his charity passions.  He was very impressive.  Charming, funny, and extremely effective.  He oozed an honesty and clarity which is so often missing from our front-line politicians.  All of those who said they will miss him really did speak from the heart.  His death is a huge loss to his family, and all those who regularly encountered him.

Dennehy Wealth