How the US economy will go
This Covid wave certainly calls into question the superiority of the European model and its scientific approach much praised in the German narrative of recent months. The analysis by Alessandro Fugnoli, chief strategist of the Kairos funds
Is it possible to maintain a constructive approach to the future of financial assets with what is happening on the pandemic front? In the last few days, the stock exchanges have said no, with moments of deep and almost desperate darkness.
The prospect of returning to the worst phases of spring, the suspicion that instead of starting to disappear the virus may rage as many years as it wants, and the awareness that vaccines will offer partial and precarious coverage has combined with the feeling that the pandemic is not more controllable, that companies have become intolerant of containment measures, that the damage to the affected sectors is becoming irreversible, that social discontent is mounting quickly. Governments, for their part, seemed powerless and paralyzed, unable to make clear-cut choices between public health and the salvation of the economy and therefore losing on both fronts.
Add to this the silence of the central banks, due to the upcoming elections in America and the semi-paralysis of the ECB for the German obstruction towards further monetary measures before December in Europe. Then we consider the American elections that never arrive and that when they do arrive they will be impossible to read for days if, as it seems, in many key states the two sides will be divided only by a handful of votes. Let's also consider the effect of a tax package on which there was a fake negotiation, because neither Speaker Pelosi nor the Republicans in the Senate had from the beginning any intention of reaching a compromise. We put everything in a context of tired stock exchanges, no bigger ideas and with high valuations in certain sectors and deservedly low in others and we have all the ingredients for a perfect storm.
The problem, now that the storm has occurred and we can no longer go back in time to sell, is to understand if it was a passing alignment of fatal stars, frequent in October for various reasons, or if the paradigm of the last six months, made up of monetary and fiscal stimuli, upcoming vaccines and technology for work and entertainment that pushes the stock markets to new highs.
The answer must be sought halfway, but the encouraging aspect is that the reasons for pessimism are cyclical and short-term, while those of optimism are structural and medium and long-term. In short, in addition to the American electoral limbo, we also put the wave of Covid in Europe. This wave certainly calls into question the superiority of the European model and its scientific approach much praised in the German narrative of recent months, but it remains true that the epidemic, even if poorly controlled, proceeds in intermittent phases that have so far denied the extrapolative hypotheses of enlargements continue with geometric progression.
In short, even if we were to get used to living between intermittent phases of pandemics for many more years, on the one hand we would learn to adapt (it is striking that American airlines, albeit amidst capital increases and layoffs, are already not so far from breaking even today. than could have been imagined) and on the other hand we would continue to take advantage of the new super-expansive fiscal and monetary orientation, which will remain in place even if the virus moves away from our lives or is defeated by drugs and vaccines.
Anatole Kaletsky, a proud anti-Trumpian, points out that Biden's emphasis on Covid is largely instrumental and electoral and should not suggest a Biden administration committed to keeping America shut up. Biden, if it's his turn, will have the economy as a priority, exactly like Trump and exactly, in hindsight, like the European governments in this second wave of largely marginal, symbolic and pedagogic lockdowns. Taking the economy to heart in the new environment will mean continuing to stimulate it with large deficits monetized by central banks.
True, the Republicans of the US Senate have shown a certain aversion to an even more aggressive fiscal policy since August. Trump, it was pointed out, in recent years has changed Democrats more than Republicans and has had more problems at home than with Pelosi in negotiations on the two trillion tax package that has just returned to the drawer. However, the history of the past decade shows that Republicans are very willing to forget about a balanced budget when it comes to stimulating the economy by cutting taxes. A possible future Senate that is still a republican will therefore have no problems in continuing on the bipartisan line of compromise of recent years, with tax cuts combined with the spending increases requested by the Democrats of the other chamber.
Even Germany, which in recent months had tried every so often to put the issue of the return to the fiscal and monetary order back into circulation, will not go very far along this path, because the pressure of the tendentially weak dollar will force Europe to follow the trend. America on its unorthodox path.
Already next week we will be able to see a recovery of the bags whatever the electoral outcome. If the possible disputes over the outcome of the vote in some states or the long delays in the polls create anxiety on the markets, it will be a buying opportunity. Whatever the case may be, America will officially install its president on January 20 at noon, and within the following month it will have launched the extraordinary two trillion tax package. By that time there will certainly be a vaccine in initial distribution in some countries and in some sections of the population.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/come-andra-leconomia-degli-usa/ on Sun, 01 Nov 2020 07:00:13 +0000.