Boom

It was always going to come. The second wave. And when it did stocks that had been running with a little too much heat in the tyres, got hit. Inevitably. That the second wave was nuanced by contained outbreaks, and outbreaks that turned out to be localised first outbreaks, offered scant support: sell. The loose and chaotic backdrop of widespread civil unrest, didn’t help the mood, nor too the prospect of a sticky election to book end a VIX-laden year. That said, whilst the market narrative took a turn from the pro-value, pro-growth trade, bears need to pickle their onions with care. The down beat headlines spoke of one thing, but the message from Chairman Powell of late, appeared to intone something different. The message was clear: the Federal Reserve was all in. “I think our principal focus” he said, “is on the state of the economy and on the labour market and on inflation”, as you might hope it to be. The level of asset prices, he went on, is not their concern. Their concern is focused on “pursuing maximum employment and stable prices.” And they are going to use all the tools they can think of using, to get the economy going, to get employment back to where it was. Indeed, the Fed is not the only Central Bank with the nostrils flared. The ECB is now on the same page, as is the Bank of England. All the while the Bank of Japan remains a bulled-up cheerleader of unconventional policy. And there are many others too. Around the world there have been hundreds of stimulus measures announced, from fiscal largesse to rate cuts, to the now routine, QE. This all comes with a lag and will pop out of the pipe at time when potentially a COVID vaccine will be on the table. The Central Banks want a boom. There may be fine academic reason to query the end-game of another debt fuelled boom, but if it is a boom that the Central Banks want, a boom is probably what they’ll get.