Macro ESG: markets, politics, and technology for a sustainable future with Greg Beier: Recent Episodes
Macro ESG
We analyze the risks of markets, politics, and technology for a sustainable future.
We generate actionable ideas with clear risk reward and position size.
We have a solid track record of forecasting major change, such as Biden’s election and its implications, China’s yuan rally, plus the crude oil and Covid crashes.
I had a chance conversation with a Ukrainian scientist today, with whom I shared my reasoning as to why the Ukrainian war is being fought and how it can be resolved. My views are unconventional and quite contrary to the prevailing winds, but as she liked them so much, and as they may be helpful to unwind a dangerous and contentious problem, I made a video to walk you through my ideas. www.macroESG.com @gregbeier @macroesg
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The Australian government initiated a strict two-week lockdown in Sydney this week and its news service laid bare the significant risks of the Delta Variant, implying a much higher risk than is being made clear by governments in Western Europe or the US. We believe the Australian report to be solid as they have a very open, cohesive society.
The exceptionally transmissible Delta Variant is likely to infect everyone until communities hit a population immunity threshold of vaccinated or previously infected. In the United States, 54% of all Americans have had one dose and 46% are fully vaccinated; worryingly, 17 states have first-dose vaccination rates below 50% among 18-year old’s and up. Globally, only 39 countries report having vaccinated more than 40% of their population.
The uneven, slow roll-out of vaccinations in the United States and across the world mean that people are going to have to get sick to achieve herd immunity in their communities or they will have to lockdown and wait to get vaccinated. The result is that large parts of America and entire countries will likely have lock downs from the Delta Variant, surges of illness, or mixes of both. The more people the virus infects in different settings, the greater the chance that dangerous new variants arise which current immunities are not effective against.
Governments, central banks, and markets will find anticipating and managing these rolling crises problematic. These and other risks described in earlier Macro ESG pieces are quite likely to overwhelm monetarily stimulated stock markets.
Consequently, Macro ESG went inordinately short US equities today (June 29th) through large purchases of deep out of the money one-year puts in the Leveraged Aggressive Model Portfolio. www.macroesg.com #macroesg #gregbeier
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We are keen to be short Nasdaq futures mainly because its dominant Big Tech names have been the biggest beneficiaries of price appreciation during the Trump Administration and during the Pandemic. Hence, it’s only logical that when the Fed’s protective bubble is unwound that we should expect the Big Tech sector to also continue falling when the Trump Bubble collapses as well. We call this the Double Bubble - the first, constructive; the second, destructive. www.macroesg.com @gregbeier @macroesg #macroesg
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The decline in US 10 Year yield is a decent confirmation of our bearish US equities view so we are putting on an 84% Nasdaq 100 futures short in the Leveraged Aggressive Model Portfolio.
If we are wrong, then Leveraged Aggressive will lose 69 basis points on a 104% gross short position. www.macroesg.com #macroesg #gregbeier @gregbeier #susarb
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- COVID Risk Increasing
News of Covid success in the United States and UK is masking much bigger problems. News reports estimate that 30,000 people are dying a day in India. Covid is still spreading out across the developing world and Asia (Tokyo and Melbourne on lockdown).
- Variant Risk Increasing
The risk of a super variant that current vaccines are ineffective against emerging from these hotspots is a realistic possibility and will drive down risk taking in markets. As 200 countries come together for the Olympics in Japan, a super variant could emerge from the Games, as a chief doctor has warned, begging the government to postpone the games.
- Republicans
As the Democrats have such a narrow margin of control in the Congress, the Republicans are highly incentivized to harm the economy and be generally disruptive so as to weaken support for President Biden’s policies and push voters to support the Republicans in the mid-term elections and take control of the House and the Senate.
For example, just two days ago former National Security Advisor General Flynn talked up a coup, the Governor of Texas just signed a law that will limit abortions after six weeks, and Republican states across the US are limiting voting access. #macroesg @gregbeier #susarb www.macroesg.com
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NB: This is an update to the January 12, 2021 piece “Social Media is a Solid Short” on MacroESG.com.
When Tim Cook, CEO of Apple, called out Facebook’s business model as being a social liability for humanity, he put a cap on the stock price. Trade location: Facebook shorts should be made against the high of this day. While the market power is so substantial now, FB is gently listing along. As the US congress and President Biden are tied up with vaccinating America and getting the stimulus program into law, this has kept the hammer of the government from coming down yet on social media while Australia led the challenge of the social media revenue model. If this were to happen across the world, Facebook’s near 40% profit margin on about $80 billion in revenue would shrink. Jeff Bezos confirmed the negative outlook for mega-tech when he announced that he is stepping down as CEO to become Executive Chairman of Amazon, in a move almost certainly tied to the fact that the top job will become about managing regulatory risks like anti-trust, labor unions, and consumer privacy. www.macroesg.com #macroesg @gregbeier
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The time has come to short social media which means Facebook and Twitter as they’ve been the engines of the political controversy. After last week’s attack on Capitol Hill, the Congress has impeached the President for a record second time and will certainly reign in his tool of power - social media. The Russell 2000 Small Cap index is up ~20% since the election of Joe Biden on November 10th, indicating a change in stock market leadership. As Facebook has been riding a wave of good will for a long time that has allowed the company to remain exceptionally profitable – that good will is totally over, and the pendulum will swing the other way. Facebook may be broken up on anti-trust grounds and long investigations and hearings will be burdensome to the company. www.macroesg.com #macroesg @gregbeier
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America’s Two Greatest Threats…
The two greatest threats to America’s national security are:
Money influencing policy; and Polarized politics. …Creates Global Risk
When money in politics creates a split America – then this is the worst possible path for the United States to follow. And this endangers free and open societies around the world, as the US still is the cornerstone of the global system. If the US falters, every other country is at increased risk. Money influencing policy that creates polarized politics in the United States is, therefore, the greatest threat to global security – at least in terms of implementing solutions to all of the obvious global problems and maintaining a strong, vibrant alliance of open societies. Moreover, it will not be possible to tackle to climate change and the biodiversity crisis – much less deal with nuclear weapons and pandemics - so long as the US is divided. www.macroesg.com #macroesg @gregbeier
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We are at a historic moment in the history of the United States.
As MacroESG has been writing for some time, the Trump administration is fitting the historical analog of the two previous presidencies, Hoover and Carter, that preceded their respective transformational presidencies, FDR and Reagan.
This means that Joe Biden is going to be a transformational president, just like FDR and Reagan, which makes the US a long-term buy. www.macroesg.com #macroesg @gregbeier
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Blue Wave is Complete
The election of Raphael Warnock and Jon Ossoff in the Georgia Senate run-off elections has completed the Blue Wave.
Macro ESG Called It Months Ago
Macro ESG called on July 23 in “Macro ESG Daily: We Are At an Inflection Point” that "...the Senate is going to fall to the Democrats too. It’s going to be a political Armageddon."
And this is exactly what happened today.
Historic Diversity From Georgia
Raphael Warnock is the first African American Senator to win an election in the Deep South without being an incumbent since Reconstruction (the period following the Civil War).
Similarly, Jon Ossoff is the first Jewish Senator from the Deep South to be elected to the Senate since Benjamin Jonas, a Democrat, who was elected in 1879 from Louisiana. www.macroesg.com #macroesg @gregbeier
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In spite of these dire facts and likely projections, because the Fed has pushed so much money into the system, giving Airbnb a sky-high valuation on day one, and because of the vaccine - nothing is going to come down.
Equites are looking through the winter at the rebound that will come in the summer from economic activity snapping back.
The stock market is quite literally vaccinated from the covid crisis. www.macroesg.com #macroesg @gregbeier
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Bad Virus News Wins Georgia
I expect that on January 5th the news will be so bad about the pandemic across the country that voters are going to say – No, we are not going to support a party whose President said covid was all going away, was protected in the Senate, and who did not move on covid relief until they had to for their own political interests. www.macroesg.com #macroesg @gregbeier
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In summary, the US dollar’s value is determined by S - Social assessment (class and race divisions) which is primarily determined by its G - Government assessment (capability and leadership).
Investment and Trading Plan
If a surprise event comes up - like a bad ending to the war in Afghanistan - that leads to protests in the US and a decline in the Social assessment, then the US dollar is a solid short. If other bad Government actions/decisions drives Social lower, then the USD is a very solid short.
Conversely, if Joe Biden maintains strong social cohesion and pulls the country together after Mr. Trump leaves office with a solid plan that the country buys into, then the dollar is all set to be steady to up. In MacroESG speak, if strong G leads to steady to strong S - then the USD is a buy. www.macroesg.com #macroesg @gregbeier
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I am pleased to announce that MacroESG is now the research product of Sustainability Arbitrage LLC, a company that I founded. Macroesg.com will be the research portal for Sustainability Arbitrage. I believe that a significant surprise event likely to happen in 2021 will be the massacre by the Taliban of mid-level and low-level collaborators in Kabul, Afghanistan. I have not seen this idea stated anywhere and as it is so obvious – it leads me to believe that this could be a surprise with power in the markets. www.macroesg.com #macroesg @gregbeier
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Bet big on policy changes that ignite paradigm shifts. The best ideas are clear wins based on clear incentives to people in power: The less obvious, the better. Trade the spread between policy change and emotionalism. Betting on policy change is a lot more predictable than emotionalism: Determines risk-reward. Analyze the drivers of global power dynamics. Markets, politics, and technology for a sustainable future: Try to understand the Deep Game. www.macroesg.com #macroesg @gregbeier
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“If Pope Francis reaches out to other leaders of major religions and encourages them to join, the Council for Inclusive Capitalism could build an alliance large enough around the world together with businesses and investors that could push through systemic transformations required to meet the challenges of our time - particularly with the arrival of the Biden Administration. A watershed moment!” @gregbeier #macroesg www.macroesg.com
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Macro ESG made a high conviction call on June 14th that Joe Biden would win the election with clear, sensible reasons (hence, the bullseye graphic above).
Macro ESG then went on to lay out an investment plan that would work in a Biden administration and beyond.
Macro ESG has taken the liberty to simply duplicate the original piece from June 14, 2020 below.
Please click this link to the Wayback Machine at Internet Archive to verify. www.macroesg.com #macroesg #gregbeier
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Simple – Jack Ma threatened the systems of patronage that are at the heart of the Chinese banking system. When he threatened to disrupt the entire financial system, he threatened everyone who either controls the banks or depends on the banks for their survival. As China may very well be a house of cards of leverage, Jack Ma’s statements ultimately threatened the very stability of China itself. www.macroesg.com #macroesg @gregbeier
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The Presidency
At 264 Electoral College votes, if Joe Biden wins Nevada tomorrow (which Hilary Clinton won in 2016), then Mr. Biden is the President.
The Senate
The Senate is still winnable via Georgia run-offs in January and worsening pandemic. www.macroesg.com #macroesg @gregbeier
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Buy dollars on dips with tight stops if Mr. Biden is on track to win the election. Sell dollars on rallies with tight stops if Mr. Trump is on track to win the election. Buy RMB and Chinese government debt - only invest what you can afford to lose as the entire investment could get locked up in unexpected military and diplomatic machinations. www.macroesg.com #macroesg @gregbeier
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The states with the highest turnouts tells an interesting story of what is really happening: 108.3% Texas 90.8%. Florida 95%. North Carolina 86.5% Arizona 89.6%. Tennessee As I have written in Biden Wins it with Florida, North Carolina, and Arizona, these above states may be about to flip to the Democrats - locking in Joe Biden’s presidency without any doubt - and bringing in Texas and Tennessee to the Democratic side. www.macroesg.com #macroesg @gregbeier
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For long-only investors, exit the platform tech names that now account for about one-fifth of the S&P500’s market cap. For long-short investors, time to think about which pairs make sense in the new world that is coming with the Trump loss. I’ll put a few ideas together and roll them out when I’ve conviction in them. The next bull market will not be about GOOG, FB, AAPL, AMZN. www.macroesg.com #macroesg @gregbeier
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The Republican Senators commitment to no new fiscal stimulus plan is driving the equity market lower, particularly as the coronavirus wave picks up in Europe and the US. A lower equity market will hurt support for Republican candidates, as many Republicans planned to vote on Election Day. The Biden win will secure a seismic shift in the US towards a sustainable future, bringing much of the world with it. www.macroesg.com #macroesg @gregbeier
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The Republican Senators commitment to no new fiscal stimulus plan will drive the equity market lower. A lower equity market will hurt the median voter and will drive down support for Republican candidates. This will push yields lower in US government bonds and create fait accompli for Biden’s win amongst institutional investors who will treat the new administration with great relief. www.macroesg.com #macroesg @gregbeier
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The next wave of the virus is starting to hit the northern hemisphere. While the world is better prepared, the infection levels are likely to be greater than during the earlier wave. Please see the charts of projections of deaths and infections from the respected (and to date accurate forecasters) at the University of Washington at Seattle. For long only investors, it’s a good time to go to cash - particularly with the major indices trading around all tIme highs. Overall, investors and the public at large do not seem to realize how bad that this is going to get which means that there is a shock coming to the system. www.macroesg.com #macroesg @gregbeier
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Actionable Ideas: Keep a sharp eye on the RMB, the Korean won, the Taiwanese dollar, the Philippine peso, and the Malaysian ringgit. Similarly, monitor the large non-bloc nations of India, Japan, Indonesia, and Australia. Pay close attention to statements from China seeking to tighten the bloc and harm non-bloc states like China’s threat today that it would not buy coal from Australia. www.macroesg.com #macroesg @gregbeier
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Goldman’s US dollar view is wrong on a Joe Biden win and the vaccine. Why? The US dollar weakened under Trump’s divisive leadership. Logic suggests it would therefore rally on the US coming together. Biden’s decades of bipartisan experience and bipartisan support would translate to a stronger dollar (barring, of course, more civil disturbances from police shootings). Dr. Anthony Fauci says that broad availability of a vaccine may not be possible until the 2nd quarter of next year - at the absolute earliest. There is far too much vaccine optimism already priced into the markets, leaving a downside surprise more likely than upside. www.macroesg.com #macroesg
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In areas of high Trump support, I’ve noticed substantially higher disregard for wearing masks in enclosed public areas. This combined with higher obesity rates as well as weaker public health care systems are creating a perfect storm for an acceleration of the pandemic in these areas. If infections rise in Trump areas before the election, this could push the market lower and push the Republicans to the table to meet Speaker Nancy Pelosi. A US stimulus deal would be bullish for global equites. www.macroesg.com #macroesg @gregbeier
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The recent rise in US government bond yields on the longer end (7 to 30 years) indicates investors are already buying into the Biden win and $2+ trillion of green infrastructure spend (I was completely wrong here, expecting the Long Bond to fall to a zero yield {pls see Trump Leads the US to a New Low in Global Norms} in a rush to safety during a highly contested election that looks less likely) which has also brought a firming of the USD too. As the House of Representatives prepares to take on the “platform” technology stocks (as covered in Macro ESG here and here, a big topic that will absorb several pieces shortly), it’s a good time to diversify away from the liquidity-fueled names. Whenever Trump says he’ll do a stimulus deal and the market goes up – sell a bit of the old portfolio and when he next says that the deal is off – use the dip to buy. Use the see-saw of Trump’s strategy to get better average prices. Also noticeable is the solid performance of the RMB as predicted in China Builds Investment Alliances with Oil Suppliers via Rising RMB + Equities as US Squabbles and will be a key theme of 2020 – go with it. China is strong and getting stronger – the next round of political showdowns isn’t going to start until after the Biden inauguration. www.macroesg.com #macroesg @gregbeier
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Following the Dictator’s Handbook, to show strength, President Trump made a big return to the White House last night in a last-ditch effort to garner media attention. Equities and oil are a short as Trump seeks to motivate his base to get out the vote through fomenting fear and bad news via declaring that the stimulus deal is off until after he wins the election. If the market falls out of bed, Trump will hit the breaks through declaring the stimulus talks are back on. As this is a weak, easily reversible decline, invest your time in putting together a Green Infrastructure Boom portfolio to own for the next 3-5 years. Closely watch developments in Florida, North Carolina, and Arizona to determine the fate of the election being decisive for Biden or not. www.macroesg.com #macroesg @gregbeier
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The IMF today threw off the shackles of caution and encouraged governments to take on debt and pursue green infrastructure development. Green bonds are going to become core institutional holdings to fund this leap. The hydrocarbon business is about to collapse - transfer payments are going to be essential to ensure that these workers can transition to the new world, lest political and social problems arise. The era of Collective Action Clauses (“CAC’s”) that tie-up restructurings are on the way out as investors are seeking smarter terms. www.macroesg.com #macroesg @macroesg @gregbeier
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If Donald Trump becomes intubated or dies from COVID-19, then it is likely that: Trump’s underlings and the Republican Party will quickly abandon him and his party of one ethos. The election: Republican Senators in weak seats will likely defect to the Democrats, and Seek to quickly approve a stimulus deal which would be very bullish for the the US stock market. www.macroesg.com @macroesg #macroesg
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The US dollar will trade inversely to President Trump’s fortunes.
If the election isn’t resolved through an overwhelming win for Biden on election night like I expect, get short the US dollar until the Supreme Court resolves the scenario.
If Donald Trump starts to really slump in the polls, then look to get short the US dollar as he’ll likely engage in destabilizing activities to revive his flailing bid.
If Donald Trump is unable to carry on the election because of the coronavirus, then the US dollar is a buy.
www.macroesg.com #macroesg @macroesg
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I just spent a month using a Bloomberg intensively to see if it could do the trick to help with Macro ESG.
And it didn’t work.
Why? Specifically, the data sets that are required to think about Macro ESG are varied and intense. For example, I was doing an analysis of Angela Merkel’s refugee policy decisions which - inevitably - leads one to study German demographics. While the Bloomberg had each country’s population, it did not have fertility data (this to be published soon - I’ve legal pads and Word files full of ideas from the hiatus).
And that is exactly the opportunity. The Macro ESG business is for polymaths to support specialists. And it is desperately needed. #macroesg www.macroesg.com @macroesg
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Summary:
- Republicans and Democrats are each stalling fiscal stimulus to either support or hurt Donald Trump in different ways and influence the result of the election.
- President Trump attempted to protect himself politically with an executive order to supplement unemployment insurance and win support with the electorate.
- The US stimulus political battle darkens the prospects for the dollar.
- America’s macro ESG “S” and “G” ratings will decline, exacerbating the dollar’s weakness.
www.macroesg.com #macroesg
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Summary:
- China is likely preparing the RMB to rally along with the stock market. Perhaps China is doing a deal with the non-China SWF’s – which would make sense. Governments talking to governments – building strategic alliances of capital and trade – new blood brothers.
- These new alliances of “mutually assured growth and political control” will have a big impact on the evolution of global development.
- Unless the advanced economies respond forcefully, the world is entering a dark phase.
- As the oil industry is officially becoming relegated to the back waters when the largest market cap company in the world was Exxon in 2011 and Exxon has just been pulled from the Dow Jones Industrial Index, oil is about to make itself felt in another big way.
www.macroesg.com @macroesg
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Sustainable Future Outlook:
- But there is a risk to thinking that China will seriously act at all in any time in the near future on climate change.
- As China is likely to build itself up strategically through creating a “hard” currency by recycling its energy spending with its energy suppliers into rising RMB against the dollar and a rising equity market, it will be unlikely that China will make any meaningful progress on the climate change front.
- Therefore – Macro ESG’s assessment from China’s likely set of incentives based on 2nd and 3rd order changes through integrating markets, politics, and technology for a sustainable future – China will not want to upset its client energy suppliers with a big push to decarbonize.
- In a sense, Chinese elites will have been captured by the hydrocarbon elites much like the Republican party has in the United States.
www.macroesg.com @macroesg
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Summary:
As I pointed out in #1 of 6: Dollar Hinges on Election Post Stimulus Self Destruction, the US dollar will trade entirely based on policy and that will be determined by the election. An examination of Foreign Exchange Holdings (“FXH”) of US dollars as reserve currency data from the IMF from the perspective of US political parties and presidential administrations yields interesting insights.
- Republicans have hurt the US dollar as a reserve currency while Democrats have been constructive.
- China’s goal to tighten relations with developing nations could thus negatively impact the USD as reserve currency.
- A decline in the USD as reserve currency would have its biggest impact felt on US interest rates and rolling the national debt.
www.macroesg.com #macroesg
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Summary:
- Advanced economies typically led major changes in the US dollar versus emerging economies, when compared from the starting point of freely trading fiat currencies in 1971.
- For the first time since the dollar went off of the gold standard, advanced economies are losing their power to lead the value of the USD.
- Now the future of the dollar is equally tied to emerging and advanced nations, signifying the end of G7 power and the rise of G20 power.
- China’s plan is to conquer the world from the bottom up.wwwmacroesg.com @macroesg
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In this sixth piece of the series, I attempt to put all of the pieces together.
- This is a game for the US to lose.
- If American politics – the “G” of macro ESG fails in a stimulus spending appropriations failure – then then US markets could take a deep hit.
- American elites might find themselves pushed into a corner so America may respond with inciting political instability in China through starting border skirmishes.
- If the US is capable of building a coalition of the leading democracies – then China is also in trouble because China is a big buyer of advanced machines and tools which could be withheld as China mainly a low-margin low-value added assembler of high value-added designs.
- China’s risk is that might not be able to ascend to become a higher value-added tech society because political dissent is illegal and property rights are capricious.
www.macroesg.com @macroesg
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Introduction: This strategic investment piece is an overview of a collection of ideas which will be broken out into a series of long-form pieces with more data and sources to explore and flesh out the theses presented here. While not yet polished, I hope that these points here will be helpful to you.
Why Did China Fail to Evolve? Crude Oil and Market Fundamentalism are Finished Authoritarianism and Chinese Companies Delisting From the US Is China Apple’s Achilles Heel? Macro ESG Trumps Company ESG Emerging Markets Ex-China Long-Term Buy The Era of China’s Digital Mercantilism Ends The CCP is Really a Private Equity Firm Shanghai Comp Resembles the Dow Jones in the 1920’s China’s Ponzi Scheme Hong Kong is China’s Switzerland China’s Social Stability Risk Will a Weak USD Increase Demand for RMB Debt? New Research Format: Macro ESG will be transitioning its research format from the current beta-release approach that has been testing different formats to a tactical trading piece published daily and to strategic investment pieces published every few days. www.macroesg.com @macroesg
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The Macro ESG forecast on June 14th in “Global Investing Post Trump” was that Joe Biden would win the presidency, “oil would become a stranded asset,” and the “move to renewable energy becomes a global goal.”
The Financial Times reports today in The Big Read article “Biden gambles on placing climate change at heart of US energy policy” that Biden is delivering on this promise to go big on climate change with a plan to decarbonize the US electrical grid by 2035.
Clearly, Joe Biden is going to go very big on this. www.macroesg.com @macroesg
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Belarus’s recent instability is a product of international oil politics and the poor public health response of the European and American democracies to the pandemic combined with an aging autocrat that didn’t deliver much in the way of benefits to his people. This is a prime example of global power dynamics at work and the events in Belarus are a byproduct of these primary changes. That isn’t to say that Belarus wasn’t ripe for a change (it likely was) - but it shows just how interconnected the world is today. Belarus was on the receiving end of a lot of feedback from the global system - now the only question is - what will Belarus’s feedback be back into the system of global power dynamics? www.macroesg.com @macroesg
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The similarities between what happened in Beirut and what is happening with climate change and biodiversity collapse are striking.
Like Beirut, the world has a bomb of climate change and biodiversity collapse risk metaphorically sitting in a warehouse by the port too and, literally, nobody wants to deal with it. Many complaints have been filed with governments by scientists, activists, and the public about this huge risk and yet it is still there, many years on.
The world, like Beirut, is run by competing interests but the way the game is set up, nobody is going to do anything about climate change and biodiversity loss until it is too late and the proverbial climate bomb has gone off. www.macroesg.com @macroesg
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Short Russia Trade US Stimulus Trade Chinese Cyber Retaliation Go Long - Short the Supply Chain Slow Down / Break Down www.macroesg.com @macroesg
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China will strike back. There is no doubt about it. President Xi’s power rests on his aggressive call to action to the Party’s cadres to be bold. He can’t back down from any challenge to his authority - foreign or domestic. He can - however - bide his time so long as his supporters are confident that he will act, then he is safe. But the gloves are officially off. This morning, in Hong Kong, media mogul Jimmy Lai and his two sons were arrested on suspicion of foreign collusion and uttering seditious words.
And we may have a war on our hands before we know it. Today’s South China Morning Post ran a story about the US looking to “outgun PLA in Indo-Pacific” - and given the current environment - I think that story was directed from Beijing. The story concluded with the observation, “Beijing’s countermeasure is to disrupt the alliance. At the moment, only Australia is listening to the US. Its other allies, like Japan, Singapore, the Philippines, and the other members of ASEAN are undecided about what to do as they don’t want to take sides between Beijing and Washington.” www.macroesg.com @macroesg
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President Trump just this evening ordered that US firms stop doing business with TikTok and WeChat in 45 days.
This is not a surprising development. As Macro ESG has been writing this week, US mega tech (as there really isn’t a comparable entity in the EU or developed Asia) are going to become the interlocutor and guarantor of Chinese tech and media operating outside of China, particularly with respect to users’ privacy and data.
Moreover, this fits with the earlier piece on reciprocity becoming the standard and the hitch here is really with China – China will never open up its domestic market to foreign technology companies, let alone American, because the Chinese Communist Party can’t retain power without overwhelming 1984 Orwellian social control. www.macroesg.com #macroesg
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US mega tech only gets stronger from mediating the China - US technology fight. Chinese bonds are going to drive capital flows to China - a win in the beginning. Privacy and data issues are going to become even more seriously regulated because of the China affair. Www.macroesg.com @macroesg
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The Microsoft purchase of TikTok could be the new detente model for Chinese tech expansion while Trump bungles the global PR win with a colossal gaffe threatening global capitalism. Russia at risk of becoming a massive short on snake oil vaccination program. Treasuries on their way to zero yield.
macroesg www.macroesg.com
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Next moves – I expect that the guiding principal of US – China relations will be one of “reciprocity” – particularly with technology. If US newspapers can’t be sold in China – then Chinese newspapers (eg. “The People’s Daily” here in the US) will be banned from sale. If American social media companies can’t have unrestricted and unfettered access to the Chinese market, then Chinese social media will lose access to the US. As China is a closed society with high levels of social control, I can’t see how any US technology will make it into China – which is odd as Apple produces most of its technology there in the first place. www.macroesg.com #macroesg
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Therefore, the one thing which could shore up support for Trump at the final moment would be if there was mild weather in October in the Red Republican Southern states and suddenly the virus infections went way down because everyone would be able to open up the windows and get outside – hence, breaking the chains of infection.
As the Southern states that are currently suffering from the virus are overwhelmingly Red Republican – Florida, Alabama, Texas, Georgia, Florida, and so on - the result of the election could come down to weather. www.macroESG.com #macroESG
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This is a negative feedback loop – the virus continues to soar, so the economy is dead and the government stimulus lifeline that was keeping consumer spending stable is about to take a hit. So, the economy will decline, and the virus will continue to grow as people are continuing to interact outside of their homes looking for work. It will just continue to get worse and worse until after the elections when the new President calls for a lockdown. www.macroESG.com #macroESG
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What is the meaning of the gold and silver rally?
We have stopped believing in ourselves. It’s a vote against our current situation. It’s not fear as much as it is apathy. www.macroESG.com #macroESG
What is the big picture?
We are just living out the end of the Reagan era of so-called self-reliance through trade and fiscal deficits.
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OIL US production is coming back online in a big way via the FT. I can’t see any reason for the Russians and the Saudis not to push the price down again. However, with all of the talk of Russian and Chinese interference in US elections, it’s possible that the two biggest players in OPEC+ might just want to sit on their heels and let the election slide by before beginning open market operations again. I’m revising my opinion on Oil – the market will likely drift until the election and then the price will start to sell off gradually. Any rallies are traps and to be avoided. www.macroESG.com #macroESG
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We Are At an Inflection Point
The markets today are on a knife edge. The whole lattice of politics, elections, technology conflicts, China, and virus can be seen clearly in the trading of the USD, the SP500, the Nasdaq, crude oil, and the 30-year yield.
Disaster could be averted, but the flow of bad news a-la the virus is so negative and not likely to diminish that it looks like the whole system is about to roll over. www.macroESG.com #macroESG
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UK equities are underperforming its EU peers while the Shanghai Composite leads the way on trailing 12 month basis.
The USD is getting setup for a big fall, engineered by none other than the President himself. www.macroESG.com #macroESG
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Silver to outperform gold as this rally likely driven by offshore EM private wealth. US dollar weakness to continue as America’s frailties have been exposed by the George Floyd protests combined with by far the worst performance of any developed nation tackling the pandemic in terms of per capita infections and deaths while Europe is in the midst of building a cooperative democracy. China’s equity market bull-run to continue on Pompeo’s failure to build an international coalition. The key to US equities may be “buy the virus, sell the cure.” LSE’s Stern made a brilliant point today about the political inevitability of politics coming around to support a sustainable future within the next four years. www.macroESG.com #macroESG
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The market response to these developments have been as would be expected. The Euro is trading well, China rebounded after the tech break, the USD is weakening, and mega cap tech rallies – absorbing all of the world’s liquidity into a mega bubble driven by near zero rates in the US – and negative yields for the first time on US treasuries.
I was completely wrong on Amazon’s share price breaking a while back, but I still see that we are in the pattern of having a large-scale political change like Hoover to FDR in 1932 or Carter to Reagan in 1980 with the November election which likely means that we are going to have a market correction before that which should knock everything over. www.macroESG.com #macroESG
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As the EU failed over the weekend to agree on a Green New Deal and Emerging Markets and the Southern and Western US states continue to deliver higher infections per capita (please see charts below), the question of funding Green New Deal economic recovery plans amidst higher debt levels from further lockdowns becomes pertinent – particularly as Melbourne just launched a mandatory mask requirement in public for a much lower infection count. US and EU public debt as a percentage of national income has lots of borrowing room and is not a problem – the real problem is just whether or not it is invested intelligently – and that is quite a big if. Recent US experiences with increasing the national debt have, on balance, been failures. www.macroESG.com #macroESG
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In 1980, the top decile in China captured 27.2% of national income and by 2018 it had grown 14.2% to 41.4%. In the US, the top decile had 34.2% in 1980 and it grew by 13.7% to 48%.
Inequality in China and the US grew in virtual lockstep over the same time period.
This is a fascinating point to consider. The average person in China probably doesn’t realize that their proportion of the pie shrank by 14% because the overall size of the slice of pie grew so dramatically during the boom years. #macroesg macroESG.com
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Watch the US dollar. The dollar began selling off - quite literally - with the death of George Floyd (please see the earlier Macro ESG piece on that). The continued weakness in the USD appears to be less tied to risk-off dollars and risk-on equities than it is to people getting out of the US altogether and could presage a substantial move lower in equities.
Moreover, with the Treasury market dead (as in not a real market anymore), USD is only the meaningful market for a policy signal.
If the S&P500 and the Nasdaq sell off, and the dollar doesn’t rally – or if it only rallies a touch – and then resumes selling off – get flat US equity exposure, specifically, and then reduce the risk of markets that that trade with the US. www.macroESG.com #macroESG
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Long-Term Asia Ex-China Boom
In the 1990’s, there was Asia ex-Japan. In the 2020’s, there is Asia ex-China.
The next big wave of successful emerging markets investment will be in the nations bordering China: India, Pakistan, Afghanistan, Tajikistan, Kyrgyzstan, Kazakhstan, Mongolia, Russia, Vietnam, Laos, Myanmar, Bhutan and Nepal. I’d also add in Cambodia, Malaysia, and Thailand.
The countries around China will not boom because of the Belt and Road Initiative (which is going to fizzle out) but because of production leaving China after China’s mistaken grab of Hong Kong – hence, ending the China dream - which is pushing the developed world to realign away from China.
Long-Term Russian Boom
The Russian boom will be slower, more resource-based, and will expand to its neighbors of Norway, Finland, Estonia, Latvia, Lithuania, Belarus, Ukraine, Georgia, and Azerbaijan in Europe as well as Kazakhstan and Mongolia in Asia. It’s going to take time – there are decades of fear and misapprehension to throw off – but I suspect that Russia is ready to make peace with the West and integrate to the best extent that it can. www.macroESG.com #macroESG
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The ESG fund business is in the middle of a boom with a recent Barron’s cover and lots of positive talk in the financial press, but it will be short-lived.
When ESG funds outperformed non-ESG funds as stock markets and oil crashed from the pandemic this spring, the relative outperformance was because ESG funds had avoided oil and transportation (i.e., oil burning) stocks which all went down dramatically…. www.macroESG.com #macroESG
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As of June 30th, 2020, China has a 40.95% weight in MSCI EM USD index. China’s MSCI EM weight is greater than the bottom 23 countries, out of 26 total. As the world’s second largest economy in USD terms and largest in PPP terms, it doesn’t make sense to think of China as an emerging market anymore. Moreover, China could very well lose its emerging market status in the WTO.
MSCI has a key error in its index construction – it fails to account to account for macro ESG risks and has opened its clients up to potentially vast losses. China may be making improvements on the E front of ESG, but it has totally collapsed on the S and G of the Macro ESG view. www.macroESG.com #macroESG
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From an ESG perspective, what is most worrying about this change (which I have been fully expecting for years now) is that I can’t possibly see how there is going to be any meaningful cooperation between the West and China on Climate Change with all of the subterfuge going on. All environmental measures are about to get much worse as China is the world’s largest carbon emitter.
Cooperation with the West is going to end for the time being. In fact, it is the social and governance issues brought up by the end of Hong Kong that are going to make the environmental side so much more difficult. www.macroESG.com #macroESG
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The “ah-hah” moment that sparks a change in trend could be the return to schools in the US – which starts between mid-August to early September.
If that drives a surge of infections across the US that begin to appear in earnest by early to mid-October, that could be the catalyst to end the bull run – when schools are closed down. www.macroESG.com #macroESG
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The solution to Covid bears remarkable similarities to Volcker’s solution to inflation – you have to quickly slow the economy down. So, I’ve started to think of Covid as a new form of inflation because the cures to both ailments are so similar. www.macroESG.com #macroESG
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China is set to do well, but it’s not a Buffett buy it and hold it forever rally. Lots of dark clouds are gathering on the horizon for China’s growth. Germany just threw in the towel on resisting QE - which to me is the start of the end of QE Ray Dalio, “Central banks control the markets now” and "The capital markets drive the economy and the PE’s and the risk premiums more than the real economy drives the capital markets.” Equities are on fire as fixed income has gone flat, but the pressure that is building up in the system will be expressed through currency changes. Stay long equities, especially China, until the virus clearly threatens the ability of an economy to function and/or an economy is about to become engulfed in a trade / military war and/or domestic protests threaten investor / business confidence. www.macroESG.com #macroESG
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Macro ESG is back from break and thought that we would start with a review of the calls to date:
In How China and the EU Come Out on Top in the US versus Russia and Saudi Arabia Crude Oil Battle, the best call so far is long China. The Chinese equity market is on fire. And likely to make a big move higher. But it is a closed market and so is the currency. So, it’s really hard to say just exactly what this means to the global markets – it’s sort of living in its own little world, market speaking... www.macroESG.com #macroESG
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Yesterday, Macro ESG wrote, “China will be contained by a renewed US/EU alliance,” as one of the definitive themes of post Trump world. Yesterday, Macro ESG also wrote, “Privacy rights, establishment of international norms,” as another theme of the post Trump world. I learned today that both of these have already snapped into gear. Macro ESG will be taking a brief publishing break and look forward to posting analysis again soon. www.macroESG.com #macroESG
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Macro ESG is calling the election definitively for Biden. While this is a clarion call for the US, its equity market leadership echos throughout the world and will shape corporate and national priorities for the next three decades.
What is the investment opportunity?
Growth will be in renewables, public health, technology privacy, education, infrastructure, basic materials, micro-agriculture, and affordable housing. Decline will be in military spending, corporate jets, ultra-luxury brands, financials, hydrocarbons, consumer finance, social media, online shopping, and cellular services. Markets will be positive post 2021, but as interest rates have hit bottom, it will be real growth, not empty liquidity-driven growth. www.macroESG.com #macroESG
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The risk to EM FX is that the USD pops-up hard into a flight to quality on a stock market drop – which is what happened today. If this continues, everyone funding leveraged carry trades in thin EM FX will bail out hard in one direction, only to have the USD reverse and go DOWN WITH the US equity market once it overshoots - generating wild, whipsaw moves - and potentially devastating losses for investors. A new trade war is reigniting a whole set of old anxieties. www.macroESG.com #macroESG
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As clearly seen on the US Dollar Index chart, Mr. Floyd’s death on May 25th (plus the domestic and international protests it triggered) sparked a remarkably clear decline in the US dollar. The stunning call by President Trump on June 1st for the military to “dominate” America’s streets which was even more astonishing when Secretary of Defense Esper declined his request the next day.
These developments are putting the US dollar’s institutional credibility at risk - exactly when trade and fiscal deficits are accelerating. Moreover, the OECD announced today that the negotiations on a digital sales tax are faltering and could result in the US getting into a global trader war with multiple countries. www.macroESG.com #macroESG
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International investors should consider tilting their portfolio weightings on just this one factor – to what extent does the government collect, analyze, and implement policy around public data. This could become an essential metric that drives the analysis for equities and debt around sustainability as well as growth at the macro ESG level. www.macroESG.com #macroESG
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Boston’s most eminent intensive care hospitals’ epidemiological forecasts are expecting a return of the coronavirus pandemic in July in the United States, beginning in the states that opened up first and then moving through the rest of the country to the states that opened up later. I consider their view credible and urge caution.
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American crude oil for Belarus reached the EU on Friday while the OPEC+ petrostates agreed to extend production cuts for a month on Saturday. Oil prices are likely to stay up till August when the full shut-in capacity of the US shale producers is back online, which will force OPEC+ to drive oil prices lower. Low oil prices will be positive for emerging stock markets but a drag on their leap to a carbon free future. The rich EU will lead the world in a Green Recovery, independent from petro-politics. And China will likely come out on top and take aim to sink the US dollar. www.macroESG.com #macroESG
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In yesterday’s initial blue-water think piece about the coming boom in self-sufficient micro agriculture, I failed to make it clear just how pervasive this trend will be across the world.
Every nation, rich or poor, will become much more focused on food production and freshwater conservation. www.macroESG.com #macroESG
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In capitols around the world, technocrats are quietly asking themselves how much food they can produce domestically and become agriculturally self-sufficient. This may be the biggest, lasting structural change that comes from the coronavirus crisis in both the developing and developed countries. Food is no longer a poor country issue. Food is a Power Issue
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Brazilian elites got rid of Lula because he spent vast sums of public money on the public, reducing what they could purloin to maintain their systems of patronage.
Bolsonaro’s failed management of the public health crisis could be so bad that they bring Lula back.
@macroesg #macroesg www.macroesg.com @gregbeier
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Given that the US government is unifying politically against China in a way that will likely stay unified, I believe that the Chinese companies will be delisted in the end.
American elites are starting to feel threatened by China, in part because of the coronavirus pandemic, so they are joining together in a solid coalition to take on China.
@macroesg #macroesg www.macroESG.com
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Short Hong Kong Real Estate? Short Hong Kong?
Beijing wants HK real estate prices to come down to placate the young Hong Kongers.
Beijing will manage a gradual decline in HK real estate prices.
Beijing doesn’t need Hong Kong anymore.
Beijing needs Hong Kong to quietly fade away into a footnote of history.
The gold rush is over.
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This week, Dr. Scott Gottlieb and Dr. Anthony Fauci are giving a much higher number of media interviews than is normal where they are plainly promoting the idea that the US could have a vaccine by year-end through using their credibility to simply state that it is possible. In contrast, Merck CEO Ken Frazier – who is accountable to his board and shareholders - commented this week in the FT that a 12-18 month timeline for a vaccine is “very aggressive.”
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We are literally witnessing the start of a two-tiered trading system. It also creates the conditions for smuggling to increase. The Trump Administration is aggressively thrusting America blindly down a path of hyper neoliberalism which, I believe, is continuing a trend of weakening American power in the world that started with the George W. Bush Administration. The Trump Administration is aggressively thrusting America blindly down a path of hyper neoliberalism which, I believe, is continuing a trend of weakening American power in the world that started with the George W. Bush Administration. Senator Warren is holding a large online fundraiser on June 15th.
macroESG @macroESG www.macroESG.com
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Senator Elizabeth Warren stayed in the Democratic Primary contest through Super Tuesday to split the Democratic Party’s Left Progressive Vote that delivered Joe Biden a decisive victory over Senator Bernie Sanders. I believe that Warren cut a deal with Biden to stay in for Super Tuesday so when Biden said that his VP would be a woman, I was not in the least bit surprised - it’s going to be Warren. She eliminated Bloomberg as well. In fact, Warren kept the Democratic Party intact, cinched the nomination for Biden, and will lead the policy revolution that is coming. The market implications of such a Warren choice are nothing less than stunning. Www.MacroESG.com #macroesg
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Macro ESG Beta Review, Amazon, Stimulus Bill, and Model Portfolio Updates - Bill Maher surprises. www.macroESG.com #macroESG
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We are likely in the middle of a slow-motion train wreck. In a few months there will be a bigger second wave, much like what we had in 1918. This pandemic oddly fits as the catalyst for Skowronek‘s theory of transformational presidents. If true, then America is about to swing hard to a new vision of growth. But I don’t think that there will be a depression as the times are vastly different but I believe that it is safe to expect that what is dominant now will decline, at least relatively. www.macroESG.com #macroESG
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When Secretary of State Mike Pompeo met the President of Belarus on February 2nd (the first SecState visit in 28 years) and offered him unlimited energy supplies at a “fair market price,” I believe this statement initiated the collapse in crude oil prices. His offer to a former Soviet vassal state leader forced Russia into a cooperative relationship with Saudi Arabia to drive the US shale oil producers out of business because Russia is a vast land power with enormous borders and uses energy supplies to influence its neighbors - it needs to maintain this leverage. Saudi would benefit from higher energy prices for its newly public company, Aramco, the largest listing of all time. www.macroESG.com #macroESG @macroesg #macroesg #esg #globalmacro #globalpowerdynamics
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This is the first Macro ESG idea for the model portfolio based on the transformational president theory of Yale’s Skowronek. www.macroESG.com #macroESG
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In this episode, we take a look at the ambition of macro ESG, the structure of macro E.S.G. analysis, the meaning of holistic power, and how Macro ESG Means Interconnected. macroESG.com #macroesg #@macroesg #globalpowerdynamics. www.macroESG.com #macroESG
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Macro ESG will test each idea in a model portfolio. The focus of macro E.S.G. is how to make money in the financial markets in this new post-covid world where most of the old measuring sticks are going to prove useless, dangerous even, if we lean too hard on relationships that simply are not going to happen to occur again. www.macroesg.com #macroesg #macroESG @macroesg #globalpowerdynamics
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Macro ESG: Markets, Politics, and Technology for a Sustainable Future www.macroESG.com #macroESG
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Macro ESG analyzes the global power dynamics of markets, politics, and technology interacting within the tightening constraint of a sustainable future. I believe this process will have, by far, the single greatest impact on asset prices for decades. Macro ESG is the synthesis of systemic and exogenous.
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