Would you say that this is just the start of a mega bull run?
In my January newsletter I have said that we are heading into new roaring 20s and I strongly believe in that. It does not mean that everything is going to be up in one line. That never happens. But if you look at the macro picture, the success of vaccination and vaccine research that we are seeing in the UK is tremendous. Professor Pollard, who heads the Oxford vaccine research said yesterday that most likely this new mutation of coronavirus and others will reduce to the level of common cold in due course. That is very encouraging, Globally, the number of cases are down 30%. Vaccination is accelerating in the US. So every sign is pointing towards reopening.
Alongside that, we have very accommodative fiscal and monetary policies and consumers with plenty of savings from not spending and income being topped up by the government in various parts of the world. I see signs of pent-up demand booming and that means higher print in GDP, higher consumption numbers and therefore reflation trade as well. So my view has not changed and that is where we are heading. I think we are going to see that over the next few months.
While things are looking better on the macroeconomic front, how much of this can be attributed to the global central banks on a money printing spree?
That is definitely the key and there is no better indicator than to look at the stock indices and the market return for Obama years and four years of President Trump. It is just the same, almost 11.5-12% per annum and nobody is going to accuse Obama and Trump of being similar in any manner or shape. That just tells you that a lot of it is being underpinned not necessarily by government policy but a lot by what the central banks are doing and that has been the key so far.
But I genuinely think that from here on, the other factors like savings and pent-up demand will show up in numbers. I am also in the inflation camp as I have said in the past many times. Of course, technology plays a disinflationary role and it will continue to play that role but thanks to the amount of savings that have been made and the demand that is coming down the line, people are going to travel, people are going to go to restaurants and services. We are going to have a very strong print and the central banks are just saying put in the policies they have followed for the last few years now.
We are going to have the monetary policy on February the 5th. The jugalbandi between the centre and the RBI is going to be really crucial for the bull rampage to continue. Your take?
That is true. In the 21st century, central bankers are appropriating more and more power. In the US, Janet Yellen has gone from the central bank to treasury; in Italy, Mario Draghi is becoming prime minister. So the separation between the central bank and the government body is eroding and that is going to be the policy thing which is going to continue. It will be one of the key things that is going to drive the market. Rightly or wrongly, we do not know the full consequences of this as it plays out over the next few years. There is a democratic deficit but the market does not care. Market believes in liquidity and money coming into and chasing assets.
Investors are also monitoring the negotiations in Washington surrounding the stimulus package. President Joe Biden met 10 Republican Senators on Monday to discuss the alternative of a smaller aid proposal to his $1.9-trillion package. What are the expectations on that front?
I think it is symbolic. They will end up gathering something around $1 trillion from what I see. But the big thing this time is reopening. If the reopening happens fast, then that is going to trump everything else even if you get a package of half a trillion. So it is symbolic in terms of how the politics is going to evolve but it is going to be constructive.
