Note Nov 18,2020: Old is New – Coordination Not Confrontation:

Note Nov 18,2020: Old is New – Coordination Not  Confrontation:  For delivery of sustained recovery, coordination seems appropriate, not confrontation. Massive quantitative ease variants and Covid-19 pandemic have unleashed infatuation with mega data milli-second responses. Still, there lie old fashioned stepwise imperatives once known as political economy. Through the 1940s for instance, after pestilence, financial excess and war ravages, there emerged a decades long compendium. Coordination ensued from healthcare, trade, finance and more, including political give and take.

Political economy leadership now requires others to cooperate and not be placed as a post-2020 election U.S responsibility.

Irrespective of vaccine success, the flaring of pandemic and deficits, the Trans Pacific Partnership (TPP) followed in mid- November 2020 by the Regional Comprehensive Economic Partnership (RCEP) presage political economy changes beyond milli second response.

On November 16 2020, the Financial Stability Board alluded to fears of breakdown in the U.S. Treasury markets in March 2020. It is another illustration of risk. As counterweight to the inevitable lure of momentum, assaying the value of investments has importance. With high valuation and solvency risk existent among other factors including momentum fervor, volatility in equities and fixed income is likely to be elevated.

Equity sector rotation is likely to include restructuring and quality as themes, irrespective of size. In cyclicals amid pandemic, consumer cocooning seems increased. Overall as seen for decades in Germany, continual investment in infrastructure and training is likely to pay off. We favor Industrials broadly from products to resources.

In growth, momentum fervor has been for social media but it faces increased regulation worldwide. Instead, we favor Healthcare. Higher demand is likely to be broadly long lasting for healthcare protective practices, devices and relief. The momentum neglected Financials remain crucial within capital markets.

Currency volatility appears again a risk. Within underweighting fixed income, we favor capital preservation by focusing on short duration. We also favor as currency volatility hedge, precious metals like gold bullion instruments in asset mix.

Massive quantitative ease variants amid Covid-19 pandemic have unleashed infatuation with mega data milli-second responses. There  are however, considerations of old fashioned stepwise imperatives once known as political economy. Experienced before have been sequential pandemic and fractured leadership (not limited to politicians) followed in aftermath by speculative investment momentum excess which was then followed by the ravages of depression to be followed by the confrontational destruction of world war. Through the 1940s and beyond for example,  these prior circumstances then spawned a compendium of structures. Borne out of bitter experience, the authorities learnt to coordinate not confront.

The resultant global compendium ranged from healthcare to trade to finance and more, including political give and take. Constructed mostly by the great democracies, the compendium was to last for decades. Its positive legacy was to far outlast any individual major or minor contributor. Also, capital markets learnt by the 1940s from the bitter experiences of the 1920s and 1930s that assaying the value of investments has importance as counterweight to the inevitable lure of momentum. Realistically for the present, political economy leadership requires others to cooperate and not be placed as a post-2020 election U.S responsibility.

In the last decade politically and not singularly driven by change in the United States, there has been confrontation egged on by many big powers and regional irredentist territorial claims.Taken together, the 2016 and 2020 U.S. elections underscore electorate demands for greater internal U.S. focus. The U.S. 2020 election itself yielded results closer than generally expected and underscores friction. Both presidential candidates each received more than 70 million votes. Congress and the Senate remain closely contested. Rather than confrontation amid likely changed U.S. leadership balances, working within the system seems fundamental  for fruitful cooperation.

U.S. policies are likely to evolve. Coordination is likely to require more, not less cooperation from the rest of the world. Not unlike addressing depression and post-world war devastation in the past, the more immediate priority currently has been to fund the global fight against Covid-19 pandemic. Vaccination success is likely to take time in implementation. Up ahead lie significant global decisions, not least about fiscal spending for long term growth. It is unlikely to be solely dependent on U.S. political leadership. As a proportion of world GDP, the U.S. economy is much smaller than was the case for decades. Large deficits and trade uncertainties are globally existent with a Covid-19 pandemic increasingly raging into subsequent waves. Brexit exit deadlines loom for a European Union that has with many other internal political, trade, and financial stresses as seen in its recent budget tussles between its east and west.

Alongside the European Union and the Americas in economic heft, significant political economy changes cementing Asia/Pacific as a key growth region are underscored in the earlier Trans Pacific Partnership (TPP) followed in mid- November 2020 by the Regional Comprehensive Economic Partnership (RCEP). In its focus on internal growth mechanisms as well even over capital markets, China appears to be flexing a more aggressive political posture.

These are likely to be long lasting and significant political economy changes. Since 2009, capital market reliance on succor from central banks has been a part of the environment. Investment portfolios and authorities, not least central banks, need adjustment mechanisms well beyond the millisecond responses being experienced in the capital markets. Momentum fervor sparked by variants of massive quantitative ease notwithstanding, we expect more balance between growth and value.

Ever larger variants of quantitative ease cannot be considered as infinite panacea for growth and employment. For businesses and individuals alike, physical asset investment expansion is also key for balance. With high valuation and solvency risk existent among other factors including momentum fervor, volatility in equities and fixed income is likely to be elevated.

In equities, rebalance appears overdue between valuation and momentum. Irrespective of the sector or size of company concerned, It includes restructuring and quality as themes. Sector rotation is likely to be a consideration. In cyclicals amid pandemic, consumer cocooning seems increased. It has been so during uncertainty bouts in many other cycles. Alongside now is uncertainty in many traditional segments due to online competition. For governments and for companies, continual investment in infrastructure and training is a likely imperative. Germany has long demonstrated as much in the 1950s when in a war ravaged state, again until the 1990s when possessing a strong currency but with limited political influence and now as anchor to the European Union and despite high wages. Climate imperatives have capital spending stimulus as a global cooperative. We have cyclical favor for industrial exposure, including overweighting via products and resources.

In growth, momentum fervor has been for social media. The segment faces increased regulation of content after the U.S. election and as led by the European Union. It implies existential change amid high valuation for many social media companies. While we continue to favor the operationally and financially well managed Information Technology companies, we have the sector at market weight. Instead we favor the overweight of Healthcare. Higher healthcare demand is likely to be long lasting and in segments from healthcare protective practices to relief in the broadest sense. Often appearing neglected during momentum fever, Financials remain crucial within capital markets.

On November 16 2020, the Financial Stability Board alluded to fears of breakdown in the U.S. Treasury markets in March 2020. It was another signpost in a series of illustrations of risk.In both government and private fixed income, yield compression appears mandated by central banks. Still and with fractured economic and revenue growth, solvency is a consideration. The longer fiscal cooperation takes politically to become concrete, the greater are likely to be the pressures on policy cohesion in and between central banks. Currency volatility appears a risk. Within underweighting fixed income, we favor capital preservation by focusing on short duration. We also favor as currency volatility hedge, precious metals like gold bullion instruments in asset mix. StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e.