Llevo 31 años subido al andamio de la industria financiera, los últimos 25 gestionando patrimonios. He vivido en Nueva York y en Londres, donde he tenido la gran suerte de conocer y trabajar con algunos de los mejores inversores de nuestro tiempo. A ellos y a mis socios les estaré siempre agradecido por la formación que he recibido.
Public opinion is still divided on the outcome of the US Presidential election. This is the case not just in the US but also abroad. Two camps “both alike in dignity…From ancient grudge break to new mutiny”, and for the time being it does not go any further and hopefully we will never get to “civil war makes civil hand unclean”. Unfortunately, we lie squarely outside those two camps. There is no room for old-fashioned compassionate Republicans, free trade globalists, citizens of the world, or liberal minded people. In our days, Putin has become as unremarkable as a Danish Prime Minister.
While many people hope that this vote may signal the beginning of the end of populism in western democracies, they would be well advised to consider that it may not be much more than a fluke result. Peter Navarro, an Assistant to the President and Director of Trade and Manufacturing, said that the White House is operating “under the assumption” that Trump will serve a second term. Trump’s economic advisor for protectionism, once again gives evidence that he lives in a parallel universe he shares with the select minority who have survived the term. Yet, it was a parallel universe with direct access to the Oval Office. A surprisingly large number of people around the world is now fluent in the arcana of the US Constitution and Federalist 21. Some people, who are not easily embarrassed, still cling to the mythos that the election was rigged and that somehow the courts will uphold lawsuits for voter fraud presented on no evidence whatsoever. It is interesting to note that those bringing charges are lawyers working for the Trump re-election Campaign, as not a single State Attorney General seems to have detected any wrongdoing. Even a cabinet member, the Secretary of Homeland Security, claims that the November 3rd election was the most secure in American history. Immediately after, President Trump Tweeted that were it not for widespread fraud he would have won. We shall miss the entertainment he provides, but not if he has his way.
Moving on to financial markets, we were not really surprised by the virulence of the rotation following Pfizer’s announcement on their clinical trial success on Covid19 vaccine. In fact, we invested in Pfizer in February on the advice of an expert on respiratory diseases and pandemics because they have the best technology for making vaccines in large volumes. As you will see when you check, it has been a very unremarkable performer. Rather, we were surprised that so many people claimed to be surprised. While it is true that positioning had been extreme for months as liquidity dwindled, we were not expecting, as Bloomberg reports, widespread carnage in factor investing quantitative funds for this reason. We will not cry over the news of their troubles. These funds create havoc and irrational price action because the most important factor lately has been price momentum, and apparently not much else. A typically non-contrite and still haughty quant manager suggested, perhaps tongue in cheek because nobody is that ignorant, that this market rotation was a 16 standard deviations event. For economy and sanity’s sake, we would have used the much simpler explanation that his model is useless. In any case, investors should not lose money when good news come out, especially not such good news. As most of you know, there had been rumours for a couple of weeks that a vaccine announcement was around the corner. What seems most interesting to us though is that from the onset of the pandemic the vaccine was a question of “when”, and not “whether”, thus if your money manager was “surprised” you should consider looking for another one.
As a result of the vaccine announcement, we are comfortable that Trump will leave the White House without a fight for two reasons: most bullies turn out to be yellow-bellied when confronted and old Trump would have immediately blamed Pfizer for waiting until after the election to release the good news. We surmise from his silence on this weighty matter, that he well knows he will need all the advertisers he can get for his new show. He is looking ahead to a second, some will say a third, career in entertainment. The most important election will take place in January, when there will be a run-off election for the two Senators from Georgia. If the Republicans keep their Senate majority as expected, President Biden will have a very difficult term of office, as the Senate will hold hostage some, if not all, of his legislative initiatives. In addition, President Trump has packed the Federal Court system with 230 conservative appointees as well as the Supreme Court. Biden’s is a pyrrhic victory. He will not be able to set his agenda without control of the Senate and most State Legislatures. In addition, he will be blamed for the impending USD crisis and for the surge in unemployment which is likely take place under his watch. We will not be surprised if Trump, or a Trump avatar, were to run and win again in 2024. The markets in all their wisdom seem to like this paralysis scenario, yet we should all remember that we live in a fragile world.
A return to pre-Covid normality does not equate to a return to Kansas. Let us not forget that the Fed had to cut rates three time in 2019 and resume quantitative easing. Economic activity indicators were weakening in late 2019 in many countries. There is still the cumbersome pending Brexit issue just a few weeks away and with no deal announcement for the moment. Oil producing countries are suffering a fiscal shock from which they may never recover fully. The euro area periphery is on its way to a second economic crisis in just ten years for which their banks are ill prepared. We expect a replay of the periphery Sovereign and Banking crises in due time as discounted by the valuation of bank stocks. Disruptive forces will continue to hinder incumbents in many industries, but none more so than financial services, which have been left alone by Big Internet for now, but perhaps not for much longer. Corporate managers and their pliant advisors have embraced the ESG agenda by cleverly emphasizing their unquantifiable progress in environmental and social issues, and surreptitiously avoiding all mention of Governance. Corporate and political governance, both, are our main concerns. We live in a time of moral relativism and crisis, thus many people are ready to accept authoritarianism because it is effective. The worse consequence of the pandemic politically is the unmitigated success of the Chinese Communist Party in dealing with the crisis at home
While the most populous country in the world is an unabashed dictatorship that is throwing its considerable weight around thanks to its economic might, the second most populous country, usually designated as the world’s largest democracy, is moving in the direction of autocracy. The national-socialist Prime Minister of India is as well using the crisis to exert nefariously the will of his Hindu nationalist base on the country. Few people today remember that a modern democracy is not the tyranny of the majority; rather it should uphold the protection and respect of the interests and rights of minority groups. Latin America is drifting into a void as the steadfast poison of the Cuban Communist regime extends its wings from the Rio Grande to the Patagonia as the world looks away because nobody seems to care anymore about that God forsaken continent, certainly not the US. Africa is the depositary of much hope but for the time being it is only a demographic powerhouse torn asunder by the interests that exploit its vast mineral and hydrocarbon resources. As discussed here often, the EU is awash in a sea of indecisiveness, as SWMBO, its sole leader for two decades, will leave the sinking ship in 2021, and has yet to find a replacement. Because of all these issues, those who look to Biden for leadership are many. We are afraid most will be disappointed by how US politics work in practice. Those who hope for the GOP to move towards the centre to support large bipartisan initiatives have missed the last few decades of GOP strategy.
Traders on Wall Street used to say, “nobody ever lost money taking profits”. In the euro area, this is no longer true as financial repression forces savers to remain invested. Yet, we feel that it is time for taking some money off the table including most if not all euro denominated fixed income, especially if you are paying management fees. While many will tell you that many stocks are cheaper today, they are missing the forest for the trees, as many companies are more valuable today than before the crisis because of the debt they have raised and the cash they have spent for lack of revenues. Appraised on a firm value basis many companies are far from being a bargain, and while we concede that in a recovery, the debt will come down, we are less sanguine about the magnitude and speed of such a recovery. In the interim, many social and political problems will come to the surface as unemployment inevitably rises once furlough programs are discontinued.
In this conflict very ably described by a close friend as “widespread negativity primarily due to a desire for ratings (from the traditional media) and the desire for regime change of many ambitious politicians”, Spain, among all the countries in the world finds itself the “worst shape” bottom decile. Just as an example, the 52 unions who represent MDs have unanimously called for the immediate removal of Dr Simón as the Head of the Emergency Taskforce for the Pandemic because of gross incompetence. Nothing is likely to be done about it. As all of you know by now, the social-communist government managed the pandemic very badly. It will manage the recovery equally poorly because they are not only vastly incompetent; they are also delusional, largely because of the ECB’s Asset Purchase Programme. Why worry when you are being paid to issue debt?
The Socialists’ communist allies are doing everything within their power to provoke the ire of conservatives as well as the alienation of the large number of people who voted for Vox. Some observers draw a parallelism to the Popular Front Government of the Second Republic. There are differences though that make any comparison with the 1930s inadequate. Most importantly there is no violence today, and we do not expect any. In addition, no matter what the current government does, there will be no military uprising either and no civil war. The Popular-Front Government was a puppet of Stalin’s USSR; the current Government’s paymasters in Venezuela are currently broke. Spain’s membership in the EU or NATO are not the insurance policies that well-meaning people rely on to sleep well at night. The real problem is that it may take a long time before the economy deteriorates sufficiently to elicit a change of political direction, and in the interim most of the country is dull to changes as they sit this out on the dole.
Just this week Podemos forced, an easily convinced Sanchez, to negotiate the budget law with the political arm of ETA, the defunct terrorist group. The ponytailed Casanova who schemed this fratricidal agreement also triumphed in his personal vendetta against the private equity managers who are fast becoming Spain’s largest landlords. There is nothing that this 21st century Rasputin will not do in his quest for a regime change. By the way, this is his legitimate prerogative and he has never been shy to say so in public. What is most troubling is the silence of millions of socialist voters who with their inaction consent to this treachery. They voted for a candidate who promised he would not negotiate with communists, pro-independence Catalan parties, or terrorist sympathisers. Sanchez has been in bed with all three parties since two days after the election. Where are the socialist voters who worried so much today? Probably many of them are “not working” from home but being paid for it. In any case, many of them celebrate Biden’s victory as their own; such is their ignorance of American politics. And so it goes…