2020 🦠 Big Easy

In the end, 2020 was a year of fabulous returns for capital. Sit back and led the Central Banks prop up all that you own, and … It’s all too easy.
A huge crisis hits, we stop the machine that supposedly is the basis for life (it’s the economy, stupid!) and yet … everything goes up. Yay!
The printing press still works. 

As I said in my previous note, free money, you see, creates growth – or at least we think so. And for 20 years, it hasn’t created inflation, so it’s all good. Sure the bond market will pretend to protest and rise all of … 1%! For real! You have to be a bond guy to think that matters – for the rest of the world, it means nothing. 

The question in front of us now is this – can it be right that 2020 was the easiest investment year I have ever seen? No. So what happens from here? The CBs have created a monster wealth transfer from Fixed Income to Equity, and we are supposed to go with the flow. But from here, with equities where they are, its harder to see sunny days ahead. Most likely a few more Greesills, and things falling apart as we stabilize here, as government checks end up SPAC’ing everything – and it feels very “end of cycle”. 

Luckily, the debt deals perform very well. What seems harder to do in this environment is to replace deals that pay off, or at least find similarly attractive returns. In turth, savings rates are up, and households are less endebted than ever (pretty hard to spend, it’s not about earnings). So consumer debt has done well – and yet all the rules as we knew them have been shattered – eg if you had a stable job in the “leisure” industry, that ain’t so good. What is your credit going forward? Post furlough … ? 

Also, it does not help that I have turned very negative on the UK – combination of:
1/ the terrible Brexit deal (uk exports services, imports goods – and did a deal for goods exports, euh ????) which will require in time a much weaker pound, and
2/ doing Brexit at a time when Govt debt has surged like never before.

With Covid, the UK has shown the world how poor its healthcare system is and how old it’s population is (not great for growth or debt). And immigration won’t solve the growth issue this time. Let’s hope I am wrong. 

As most of our deals have been in the UK, we may pause a bit here – and look to shores where the madmen are gone from office, and the stimulus is both huge and manageable at the country level … 🇺🇸