Archive for June, 2020

Once you analyze the facts you can see that the current spike is a Dan Andrew’s mistake.

The biggest known cluster is linked to the mismanagement of 2 quarantine hotel.

The others are 4 families of immigrant descent and the Government forgot to set non English advice instructions.

Even more interesting one of these families is linked to an H&M store. The person infected in the H&M (font The Age) was at Black Lives Matter protest rally. As it shows that he was infectious it means that he would have infected people at the rally.

So do not point fingers at families, but at the Victorian Government mismanagement.

President Trump vs Biden

Posted: June 25, 2020 in Uncategorized
Tags: ,

Font – Washington Times

Black Lives Matters damaged seriously President Trump campaign who is now seriously lagging Biden. While this is a serious blow – he was similarly lagging Clinton in July 2016.

CNN and the media are in general are pushing this lead as the end of President chance of being reelected.

I call it wishful thinking.

My call is that we need to see the state of the US economy in September to understand, but we should see if President Trump starts to panic and do something that compromise his chances like restarting a trade war.

The big plus for President Trump is that Biden wants to roll back part of the corporate tax. At the end most voters vote with their wallets and protesters usually do not vote.

The data point and the Fed stimulus point at a good market for September.

Also we should have a vaccine by Moderna in September (currently in Stage 3) . A vaccine release would be a huge boost.

Statistically the market has a good history of returns when the exiting president is Republican. Contrary to the common perception a Democrat President statistically is overall better for the market.

Not a conspiracy theory – but a reality Mr Moncef Slaoui has been nominated for Operation Warp Speed in developing the vaccine. Mr. Moncef Slaoui resigned from the bard of Moderna last week. Coincidences.

So the President battle is still wide open and still has President Trump in advantage – contrary to the media.

This quarter showed a massive difference between stock market performances and bond performances. A bit like last quarter, but this time favouring bonds.

This is due to the fact that stocks rallied as they believed the Covid-19 sell off was finished, while bond traders where always skeptical.

This situation is bringing the balanced abd pension fund to reallocate huge quantity of money from bond to stocks (in US between USD35 billion to USD billion – in the world in excess of USD170 billion).

So there could be a dip – that probably the media will attribute to Covid -19 resurgence.

The recent battle between Indian and Chinese troops deserves to be examined more deeply.

Since 2014 there have been more confrontations between China and India than from 1962 (last India China war) to 2014.

On the surface a confrontation seems a one way affair with China a clear winner as its army is much more modern. The reality is that while China has the upper hand in a limited confrontation (both are nuclear powers with the complete triad of delivery – from missile to ship) a war would not be so easy as logistic at high altitude is an issue.

The Chinese airfield are such at a high altitude that airplanes can carry only 50% of the load. Also the most modern Chinese equipment is in the South to confront the Americans.

But aside the potential conflict it is the strategic implications that makes things interesting. India has always tried to appear neutral in the power struggle between the US and China. This latest attack will probably push India to the US side – a moment that could have the same importance of when the US succeeded to separate the USSR from China (1956-1966) that practically laid the foundations to the US victory over the USSR.

India can easily increase the cost of Chinese interference in Vietnam, Malaysia and other countries. China imports 80% of energy needs via the Indian Ocean and Strait of Malacca – with the US more than happy to sell anti-ship missile systems this could create an easy choke point to China.

If India pivots to a US, Japan, Australia alliance it could change the entire strategic map of the Asian power struggle. Interestingly also the issue of the “Western coalition” versus China is that – even if the West has slightly military advantage – it will never have the numbers to confront China. India could tilt this equation quite easily.

As a strategic moment for the balance of power in East – the behaviour of India is of strategic importance.

What we know so far is that Coronavirus started in China, but in reality in September/ October 2019.

There are several facts that point to this theory.

In September /October the hospital traffic in Wuhan increased by over 100% year on year (383 cars/day October 2018 versus 714 October 2019, satellite images).

Probably it escaped from the Wuhan Institute of virology that was studying SARS and Coronavirus. The prove in that it is that in October that institute had an emergency closure in early October 2019. In a facility with 300 person all phone communication went dark (disappeared ) for 2 weeks. It is not a confirmation, but no mobile activity between 7 October and 24 October in a place with over 300 people indicates an issue to me.

Why they were playing with the virus (the Americans were doing the same until 2014 as a bioweapon until President Obama closed the studies)s as deemed too dangerous) it is not known.

The main theory is that China wanted to catch up in the vaccine development with the US and trying to create an HIV vaccine. This is supported by the fact that some anti HIV treatment are partially effective against Covid-19.

Another theory that it was a weapon development – this is supported by the fact that mainly the virus seems to cripple the system and not a pure killer like Ebola. A warfare doctrine shows that for any “wounded” you take away 3 combatants – so much more important to cripple than to kill.

China knew, but adopted a “if we go down you go down with us” – this is proven by the fact that China closed the internal flights from Wuhan 2 weeks before closing international flights.

Western governments reacted late and then got taken over by panic.

They did reacted late as from early January everybody knew of a pandemic and the incoming Chinese holidays.

They panicked as the Coronavirus modelling was wrong (they did assume no change in habit) and the model produced different outcome if run on different computers (yes for real!). Even in Australia the lowest ICU bed prediction was 5,000 – the max ICU bed occupancy has been 23 April at 98. Even in UK, Italy and US the predictions were off by 90% (UK death prediction 500,000 vs real 36,793 at 25th May). There are some studies that compulsory mask wearing and better management of old people facility would have been as effective as lockdown.

The virus is losing potency – probably it will transform into an annual flue -like event (and flue kills almost as Covid-19). Vaccine will be found as too many AI – pharmaceutical companies are studying it. SARS vaccine was never found as SARS disappeared and so the research funding.

The market – as I told my clients the March 2020 as striking resemblance to the 2008 crisis, but in a superfast move (practically the Nov 2007 – Mar 2009 in a single month.

Following that script we should be in the June -July 2009 period where the market went sideways (with violence) and then powered up into Christmas.

So practically this period will stay from a Fed hard put around 2,900 – 2,950 and a roof 3,250/3,300 until the end of July.

Then bold prediction – in 2009 the market powered up 11% which would bring us to SP500 close to 3,600.

Fabio Ferro

Scala Private Wealth