Biden’s win boosts global stock markets

In the few days following the US election cut off date, stock markets hovered in an indecisive way, following the ups and downs of the counted votes. One minute it looked like Biden was winning, then trump, then Biden, until finally we knew it was definitely Biden who won. And that is when the world’s stock markets broke out of a stranglehold and shot upwards, with Japan’s stock market hitting its highest level in almost three decades. It wasn’t the only one: the FTSE 100 also saw a surge on Monday after the president-elect was declared on Saturday.

Billionaire hedge fund manager, Leon Cooperman, spoke to Jonathan Ponciano at Forbes. Cooperman is a Biden voter, and while he is not particularly bullish about the long-term health of the US economy, he believes the short-term will be favourable for stocks. He says that this will be the case, even if the results are challenged, which is already an ongoing battle.

Cooperman also suggests that with Biden in the White House and Congress split, as well as the Federal Reserve keeping interest rates low, are all positive points, especially when combined with the prospect of a vaccine to tackle the pandemic, and another stimulus bill becoming law.

On Wall Street in the long term he is decidedly more bearish. He points to the US government’s debt of $27 trillion, up nearly five times on 20 years ago. It more than doubled in the last decade due to coronavirus spending and Trump’s tax cuts.

It is interesting that Cooperman is still pursuing growth stocks. For example, Alphabet, Google’s parent company, Amazon, Microsoft and Facebook are in his portfolio. His view on these is, as he told Ponciano. he’s not buying, “but not selling, either,” and called them “better than gold.” He also offers some tips on less expensive stocks, citing Cigna, one of his favorites, Navient, Spectrum and General Motors as “having good stories.”

His main complaint is that there is too much debt in the system: ”There’s a long-term consequence to what’s going on; there’s just too much debt in the system. . . . I’m assuming in the next 12 to 18 months something will happen that changes this Goldilocks environment, and it will force the hand of the Fed.” 

Cooperman emphasized looking at how many investors are now back to eyeing the prospects of additional fiscal stimulus, vaccine development, as well as any decision by the Federal Reserve to raise interest rates once again, as being the things to watch.

Cash Is No Longer King

Cash has become something of a Covid-19 casualty this year. On the day-to-day level, people have been encouraged to pay with cards, because handling notes and coins is a way of transmitting the virus. The pressure on people to go cashless is facing a backlash though: When you use a card it is easy for governments and others to track your every move, whereas cash protects our privacy.

Ray Dalio, founder of investment firm Bridgewater Associates, has taken a look at cash from the investor’s perspective and warns us that it isn’t safe. In an interview with CCN, he said the high level of spending in America means the US dollar is no longer a safe investment. He isn’t the only one who believes cash is no longer a safe haven asset, and that it will perform badly compared with other asset classes, including gold, which has surged, he says, “because the market no longer believes in cash.” He also says that the Fed’s more relaxed view of inflation is another nail in Cash’s coffin.

Dalio told CNBC that cash, “ lulls investors into a false sense of security, based on the U.S. dollar’s historical role as a reserve asset.” Furthermore, according to Dalio, the Federal Reserve’s  spending spree since March has seriously weakened the value of cash.

In his view, “holding cash is equivalent to accepting a 2% annual stealth tax, as a result of inflation.” This may get worse as the Fed targets an average inflation rate of 2%. The ‘average’ Dalio says is important, because what it really means is “it will tolerate an actual rate well above 2% for considerable lengths of time.”

As a result, Dalio recommends a more diversified approach to investing: “Cash is a poor asset class … It’s a quietly bad asset class. Diversification is much better than cash.”

The market appears to agree with this, and there has been a move to other fiat currencies instead of the USD. The Euro, the Japanese yen, Chinese renminbi, and Australian dollar have all risen against the dollar, although this tide is slowly turning back in favour of USD. Plus it would appear that many investors prefer equities to cash.

One last word though. Dalio has an interest in talking down cash. His firm wants investors to pump their growing cash reserves into his fund. Even so, perhaps he does have a point, and cash will come under other pressures in the near future, such as the increased use of digital payments and cryptocurrencies, which have made substantial gains this year.

The Future That is on Its Way to You!

We should be preparing for a set of major macro trends, Bernard Marr has written, after a discussion with Scott Smith of Changeist. Some of the trends already pre-dated the Covid-19 pandemic, but have been accelerated by it, and both men warn that these trends are ones we should not ignore.

Decoupled economies

According to Marr and Smith, the ‘decoupling’ of economies has been happening for around a decade. The result is a turn to nationalism in some of the world’s biggest economies, such as the USA, the UK, Brazil, Russia and India. As they say, ‘globalization is in the rearview mirror’ now, and we can expect a ‘multipolar world’ where three or four large regions with their own “distinct economies, security networks, cultures, and laws.”

Social change

Education, transportation, energy, food, and healthcare are in the midst of massive changes, much of it spurred on by the recognition that climate change is not a hoax. We are seeing a swell in the numbers of vegans and vegetarians due to livestock production accounting for 14.5% of greenhouse gases. There is also a transition to cleaner transport, and in the energy sector there is a move to meet the emissions reduction targets agreed to as part of the Paris Agreement on climate change. Covid-19 has also produced a transition to more working from home, and we are still grappling with this sudden change in our work life.

A new social contract?

The traditional social contract between citizens and government is no longer working for a significant number of individuals. Marr writes, “Societies have become divided between the haves and have nots, and any differences, whether religion, race, or sexual orientation, create chasms rather than common ground in the echo chamber of social media.” Automation threatens some workers, while the idea of a universal basic income has become a much hotter topic, as will debates about the nature of the future social contract between people, businesses and governments.

An AI reset

Currently we are seeing what is called an ‘AI reset’. The technology presents challenges that need to be carefully considered now, such as the regulatory obstacles and cost of development. On the other hand AI is accelerating and Smith believes another big wave is on the way.

Who are you?

Our personal identity would seem to be solid, yet thanks to digital technology it is varied and complex. Marr writes, “Today we have the ability to represent ourselves as a “stack” of identities that account for various affiliations, situations, values, and more.” Virtual and augmented reality has added to this ‘stacking’. As Marr says, “Given the tools at our disposal, smartphones, social media, and technology, we are free to create a digital narrative about who we are that might not match our physical world persona.”

Finally, we are facing life in a “blend of the physical, biological, and digital worlds.” The ‘new normal’ will be a combination of the physical and digital, and “Every organization must now consider how they provide products and services equally as well and complementary, whether interacting online or in the physical world.”

Some will welcome these trends, while others will be less enthusiastic. Whatever your view, it’s not difficult to see that regardless of opinion, this is our direction of travel.

China’s alarming plan for tech dominance

China has been using robotics in its manufacturing for quite some time, and it has some very powerful AI tools as well that automate processes in its factories. This is going to push other countries to match China, particularly the USA.

However, while America may be regarded as a world leader in tech, China’s President Xi has a plan to take that role for his country, and ensure that China is not using US-made tech either.

In an article published by the South China Morning Post, in May of 2020, President Xi presented his vision for China and his goal of achieving global tech supremacy by 2025. This is an extract from the piece:

“Beijing is accelerating its bid for global leadership in key technologies, planning to pump more than a trillion dollars into the economy through the roll-out of everything from next-generation wireless networks to artificial intelligence (AI).

In the master plan backed by President Xi Jinping himself, China will invest an estimated 10 trillion yuan (US$1.4 trillion) over six years to 2025, calling on urban governments and private hi-tech giants like Huawei Technologies to help lay 5G wireless networks, install cameras and sensors, and develop AI software that will underpin autonomous driving to automated factories and mass surveillance.

The new infrastructure initiative is expected to drive mainly local giants, from Alibaba Group Holding and Huawei to SenseTime Group at the expense of US companies. As tech nationalism mounts, the investment drive will reduce China’s dependence on foreign technology, echoing objectives set forth previously in the “Made in China 2025”programme. Such initiatives have already drawn fierce criticism from the Trump administration, resulting in moves to block the rise of Chinese tech companies such as Huawei.”

Tim Bajarin in Forbes, asks us to consider Xi’s use of the term, “tech nationalism.” He explains that Xi plans to “nationalise everything in China so it is the main provider of goods, services and tech-related products to China itself.” He wants China to be completely self-sufficient in tech by 2025, and nationalised tech will “receive a huge financial boost from China’s $1.4 trillion dollar fund.”

In early September former Google CEO Eric Schmidt commented that China’s leadership in AI posed a security threat and could lead to “high-tech authoritarianism” worldwide.

According to Bajarin, the US government is aware of the problem, but so far nobody knows exactly what actions it might take. Will it counter China’s influence by remaining a tech powerhouse, or what? If China is successful in fulfilling Xi’s vision, then it is also likely that “there could be a time when products we get from China are no longer available to the west.” Currently, China is still committed to globalisation, so its products will continue to reach us, but if it scales back on that, then those products will need to be sourced elsewhere. The question is, where might that source be? It is time the USA and any other countries likely to be negatively affected by a lack of good from China form a plan – the clock is ticking!