By Michael Every of Rabobank
Up until the final few seasons and absolutely the final couple of episodes, there was universal agreement that ‘Game of Thrones’ had been great. One of the things that had been so great about it was the long, slow-moving tale, rich in nuance, told over many years, and in weekly instalments all of us got to see at the same time. That’s what the entire history of mankind since we first sat around the fire together has been about. In a simple word, broadcasting, as opposed to the narrowcasting box-set-binge atomising experience we have today, which wouldn’t exactly have kept a hunter-gatherer society together. (Or a more complex one, evidently.) Besides the socio-psychological commentary, there is a direct parallel today for markets.
It is not even the end of January 2021 and yet the great global meme for the year --“The Reflation Trade”-- might be coming into question already. That’s right: the market may have binge-watched the whole thing in just three weeks.
Of course, the “Reflation Trade” was never related to underlying economic fundamentals. These have been lowflationary/deflationary for decades, as we have explained many times before. The disruption of Covid-19 is widely recognised as having accelerated our underlying labour vs. capital and monopoly/monosophy-power MNCs vs. powerless SMEs dynamics.
Yes, we have official recognition that we need more fiscal policy. Hurrah. But most of that spending is in the rear-view mirror already; and it is merely putting the same, and often *less*, back into the economy than is taken out by state-imposed virus restrictions. In balance-sheet terms, if the private sector net saves an extra 3% of GDP due to a drop of confidence or...