Wednesday Night #2002

Written by  //  July 29, 2020  //  Wednesday Nights  //  Comments Off on Wednesday Night #2002

July 29 is the anniversary of the creation of NASA in 1958. As the world around us is ever more care-worn and troublesome, our fascination with Space endures and gives us hope as we follow the news of space exploits. Maybe there is a Plan B.
Whether coincidence or not, it was announced last week that the Pentagon’s U.F.O. Unit Will Make Some Findings Public. Maybe aliens will come to save us from ourselves.

Thank you again, Terry Mosher, for giving Wednesday Night 2001 the privilege of serving as a test-run for your delightful show and tell!
This week, we have the great pleasure of welcoming Peter Berezin for another discussion of his economic outlook. Prepare to discuss and/or debate any or all of the following points:

  • Equities and other risk assets face near-term headwinds from the surge in Covid cases in the US Sun Belt and the looming fiscal cliff. We think these problems will be resolved, but the next few weeks could be rough sledding for markets.
  • Government bond yields have moved sideways-to-down since late March even though inflation expectations have rebounded.
  • The resulting decline in real yields has been an important, if rather overlooked, driver of higher equity prices.
  • The failure of government bond yields to rise in line with higher inflation expectations can be attributed to the ongoing dovish shift in monetary policy.
  • Nominal yields are likely to increase modestly over the next two years as growth recovers. However, inflation expectations should rise even more. Hence, real yields may fall further, justifying an overweight position in TIPS and a generally positive medium-term view on equities.
  • As long as there is spare capacity in the economy, fiscal stimulus will not push up real yields. This is because bigger budget deficits tend to raise overall savings, thus creating the resources with which to finance the deficits.
  • Once economies return to full employment in about three years, the fiscal free lunch will end. At that point, the combination of easy monetary and fiscal policies could cause inflation to accelerate.
  • Central banks will welcome higher inflation initially. However, they will eventually be forced to hike rates aggressively if inflation continues to march upwards. When this happens, bond yields will rise sharply, while stocks will tumble.

Mention of central banks prompts a quick aside. We somehow failed to acknowledge and welcome the appointment of Tiff Macklem as Governor of the Bank of Canada, succeeding our good friend and one of Peter’s predecessors as ex officio BCA Wednesday Nighter, Stephen Poloz. As of August 1, Stephen joins Osler as a special advisor; he has also been named a Director of Enbridge and of Montreal- based CGI and we hope that in the latter capacity he may return to Wednesday Night if we are ever allowed to gather together around the table.

What we love about market commentary is illustrated by the following:
Jim Cramer: Charts show gold prices are nearing a peak
China banks, regulators move to cool gold rush
Pullbacks in gold price, silver price look to be short-lived: Commerzbank
Currency debasement to drive gold price to $2,300 in 12 months – Goldman Sachs

We would like to hear views regarding whether addressing the economy or climate change has to be an either/or situation:
Economic recovery versus climate action: A false choice
Report: Building Back Better with a Bold Green Recovery

As Cleo is back, self-quarantined in Montreal, we look forward to her comments on recent developments in the heating up (or would that be cooling off?) of US-China relations, and in particular the views of Thomas Wright: An ideological struggle is under way between Beijing and free societies, and the Trump administration is on the wrong side.
Kitty Qiu forwarded links to the China Uncensored video Communist Power Struggle to Take Down Xi Jinping, and to NTD (New Tang Dynasty), founded by Falun Gong practitioners along with Epoch Times.
For a good opinion round-up, we recommend What Would a Cold War With China Look Like?
U.S.-China ties haven’t been this strained for decades. What happens if they snap?

As we fret about China, this news does not bode well: Iran’s Revolutionary Guard launches underground ballistic missiles during military exercise

What to say about the  U.S.? We all have our own reliable sources that inform us of the daily and cumulative coronavirus toll; the wrangling in Congress; protests and questionable actions of Homeland Security forces (a hint of good news on Wednesday?); the latest rumours about Biden’s choice of VP (is Susan Rice coming up strong along the inside rail?); trumpian Rose Garden rants; but did anyone in their wildest dreams  foresee the arrival in the décor of the improbable Stella Immanuel? Not even the lowest grade political drama could have written her in. But there she is, the gift of the great state of Texas.

The Ottawa Follies
Neither Bill Morneau nor the Kielburgers covered themselves with glory at their respective appearances before the House of Commons standing committee on finance. Nor were the Kielburgers helped by the testimony of Michelle Douglas, former chair of the board of directors for WE Charity, who revealed she resigned from her position after WE Charity’s executives refused to provide the board with financial documents to justify laying off hundreds of people when the COVID-19 pandemic hit in March.
On Thursday, Justin Trudeau and Katie Telford will appear.
If the WE to ME to … story isn’t enough, follow what is happening at Rideau Hall, where the announcement that Brigitte Carbonneau has been hired as the new chief of staff and special adviser to the G-G. With more than 25 years of experience in senior leadership at Cirque du Soleil, Ms Carbonneau is no doubt effective and good at rapid response, however, like Assunta Di Lorenzo, secretary to the Governor-General, she has no experience working with the civil service.
No better comment than Aislin’s cartoon below

Next week, thanks to Sandy Wolofsky, we welcome Lisa Napoli, author of Up All Night, Ted Turner, CNN, and the Birth of 24-Hour news. Try to read it between now and then; it is a real page-turner.

Comments are closed.