Market Thinking

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Animal Spirits

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Sentiment is an important driver of short term markets and with Chinese money being an increasingly significant factor in markets generally, so an understanding of Chinese psychology and sentiment becomes genuinely relevant. Today is the start of Chinese New Year, which is the year of the Ox. At a time when ‘animal spirits’ appear more important than ever in driving short term markets, perhaps we might pay a little more attention than usual to these traditions, not least because not only is retail investing booming in the US, but more importantly it is dominant in Asia and thus increasingly important globally.

In addition to the 12 animal signs of the Chinese Zodiac there are 5 elements, water, fire, earth, wood and metal, so that this year is a Metal Ox, meaning that a child born this year will only coincide with the previous generation of Metal Ox who are now in their 60th year. The fact that the Metal Ox looks similar to the Wall Street Bull might also be taken as a good sign for markets. The broker CLSA publishes an annual Fung Shui report for a light hearted anglicised version of how it all works.

Last year was the Year of the (lab) Rat, which certainly seems appropriate as effectively governments and the Medical Industrial Complex have been conducting a mass laboratory experiment with clinical trials for the Vaccine being performed on the population at large. Interestingly, Vaccine comes from the latin Vacce meaning Cow and is so named because the British Scientist Edward Jenner developed the first smallpox vaccine from injecting small amounts of a related virus, Cowpox, having noticed how milkmaids tended to have clearer skin thanks to what he realised was some form of immunity. Thus perhaps we should refer to this year as the year of the Cow, or the Vacce, given that it seems increasingly likely that we will all have to have the injection if we want to return to any normal sort of life.

Vaccines may or may not work on the virus, but they are the only cure for Government Policy

It is not to be ‘anti-vax’ or a ‘Covid denier’ to question why someone needs to increase their chance of surviving Covid from 99.7% to 99.8% with a vaccine that has not been fully tested, may have side effects and which promises neither to prevent infection, nor stop the virus spreading. Its only promise is that it will reduce symptoms such that those most vulnerable have a better chance of survival. In effect it is a prophylactic treatment rather than a traditional vaccine. However, it appears to be the only way that governments who have painted themselves into a corner over a closet Zero Covid policy can get out of it. As such those of us wishing to travel will likely need some form of Covid Passport – something strenuously denied by government, such that you know it is coming.

We will need to get used to being equivalent to a Cocker Spaniel

Source: Joe the Cocker Spaniel

The longer term consequences of all this appear to be a shift towards the Chinese Social Scoring system, something that ironically is attracting so much criticism from western governments at the very time they are allowing it to emerge in their own back yards. Vaccine passports combined with track and trace and other digital tracking will enable governments to know where most of the people are, most of the time and the Medical Industrial Complex will doubtless try and ensure an attractive annuity business of new variants that need regular updates. As we already see from China, such ‘passports’ are necessary not just for travel but to attend large gatherings, visit shopping malls etc, such that while not actually compulsory, they are in all but name. More worryingly, what they really represent is an official permit to have a normal life, which could allow the online cancel culture to extend to the real world. Who’s to say for example that in such a world Donald Trump wouldn’t now have his ‘passport’ withdrawn?

For markets, the real problem with Covid remains the uncertainty, not around the Virus itself, but around the increasingly irrational behaviour of governments, including just this week the UK government threatening 10 year jail sentences for anyone not admitting they have travelled from Portugal (or anywhere else on the so called Red list) and the Australians closing down Melbourne for 5 days on account of two cases of the UK variant. In effect the UK is aiming to copy an economically and socially damaging extremist health policy used in Australia at the same time as Australia, itself far more hermetically sealed than the UK would be even with its Red list, has somehow managed to find itself ‘open’ to the so called UK variant (which of course is named after the country that discovered it rather than necessarily its origination.) This quixotic (Canute like even) but unacknowledged Zero Covid policy threatens a proper collapse of underlying private sector economies, since there is no way it can succeed, which is why we have to go along with the Vaccine narrative.

As we said right at the beginning, we are not virologists, but then shockingly nor is a single member of the SAGE committee whose advice to the UK government appears to have morphed into total control of policy! What we have learned however, is that viruses mutate in order to survive and that the strain that succeeds is the one that is most fitted to the environment it finds itself in. Thus if we change the environment we change the virus; a mild, widely spreading virus succeeds when we lift lockdown, with lots of asymptomatic cases, while a more dangerous one emerges when we are all confined as it spreads via hospitals. This article by Matt Ridley is a fascinating read on all this.

Meanwhile, the response of most Western governments to the failure of their policies continues to be to double down in the manner of the old lady that swallowed a fly:

There was an old lady who swallowed a cow
I don’t know how she swallowed a cow.
She swallowed the cow to catch the dog
She swallowed the dog to catch the cat
She swallowed the cat to catch the bird
She swallowed the bird to catch the spider
She swallowed the spider to catch the fly
I don’t know why she swallowed a fly – Perhaps she’ll die!

It feels like in the year of the Ox, we are now at the stage of her swallowing the Cow (the vaccine) to catch the Dog (the mutant variant) that emerged because she swallowed the cat (put in tiers and a second lockdown) to catch the bird (the case-demic that arose from mass testing in the autumn). The bird was supposed to catch the spider (the closure of schools and universities) that was caused by the original fly. The final stage is to swallow a horse. Let’s not hope we get there, because we all know how that ends.

To finish on a positive note. Those looking for auspicious signs might also like the fact that today, the 12th February, the start of the New Year reads (outside of the US at least) as 12/02/2021 which is a palindromic number (the same read backwards as forwards) and is apparently very auspicious. Also, according to the maths geeks, 12,022,021 is an odd composite number comprised of prime numbers multiplied together. Whatever that means.

Kung Hei Fat Choy!

PS The linked articles are always interesting (we think) but we really would recommend further reading of the links today. Well worth it!

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One Reply to “Animal Spirits”

  • If only it were Canute like: Canute, of course, was actually demonstrating how “…empty and worthless is the power of kings” (when compared to the power of God) by how he could NOT turn back the tide.

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