Summary

Julian began his presentation by highlighting the damage that the COVID-19 pandemic has caused on the global economy but assured that recovery was well underway. He discussed the possibility of US fiscal spending and its effect on possible GDP growth, warning how growth can be misleading using the example of rig count, as mining investment continues to rise but the actual number of real-life rigs is in steep decline. Regarding US GDP, the pandemic has caused serious problems for policy makers. Credit was highlighted as a major issue; US banks do not buy a lot of assets and tend to take more risks, which has been worsened by the pandemic leading to tightened lending conditions. Potential problems in sustainability will lead into 2021 with a massive drop in mortgage availability.

Europe, loan supply and demand has dipped with the pandemic, yet it is not as bad as it was in 2012/13 and in comparison to the US, Europe is doing much better, due to the quality of assets the banks buy. Julian believes an eventuality may be that the US takes powers of lending away from the banks and into the hands of the government leading to vastly reduced profitability of US banks. Unemployment is a further issue for the US, which is exacerbated by the fact that corporations have now adapted to operate with a reduced workforce and the private sector is failing to create jobs.

Julian moved onto the policy effects from COVID using historical examples of pandemics to illustrate that social and political change always follows, predicting an end to laissez-faire, corporate capitalism, and an era of much stricter government-controlled economics. Moving onto monetary policy, policy makers options’ regarding interest rates, QE and credit tightening was discussed. The fed cannot afford to stop inflating the equity market. A key observation made was that the fed is not independent of government, rather it is independent within government. Julian warned of the purchases of stocks and the potential for bubbles (specifically with Tesla) in the current climate and explained the affect that equities will have on the bond market. The topic of how demographics can affect the bond market and the importance of watching treasury yields was also examined. Eventually the fed will be forced to embrace YCC. The most important thing in macro for the rest of the world is what the dollar does, with a loose fiscal and monetary policy resulting in a weaker dollar. International banks will be unable to respond affectively to a fall in the dollar. Some estimates for the budget forecast in the US are a deficit of $15.8 trillion. It is believed that the fed will buy $6 trillion of US debt, meaning that the US balance sheet is looking bleak. Dollar weakness will undermine US exceptionalism and could cause issues with widespread economic ramifications. If the dollar does decline inflation will rise.

Julian moved on to discuss precious metals and believes silver is on the rise. Furthermore, other metals may look like they will outperform gold such as platinum and potentially copper. Strong currencies attract flow into their markets, with the rise of the Euro people will want to own European markets. With a down cycle in the dollar, sectors like energy and mining will increase in value. In conclusion, the economic problems that the upcoming Biden administration is bound to face were examined and the oncoming weak dollar. Julian finished by recommending the buying of commodities and emerging markets."

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