By Michael O’Neill
The news headlines are enough to drive a teetotaller to drink. There are political tensions in the South China Sea, Russian troops are knocking on the Ukraine’s back door, and Iran has a weapons-grade uranium enrichment program. The US Capitol building, home to the most powerful democracy on the planet was invaded by a mob, leaving dead bodies in their wake. Government deficits have ballooned, and international trade has been weaponized. On top of all that, the coronavirus won’t go away.
Back in the day, just one of those headlines would have unleased a torrent of risk-aversion trades sending the safe-haven currencies (Japanese yen, Swiss franc, and US dollar) into the stratosphere. Global equity markets would tank, bonds would rally, and gold prices would soar.
Those of a certain vintage can picture Archie and Edith at their piano singing “Those were the Days.”
In 1905, Spanish Philosopher George Santayana wrote, “Those that cannot remember the past are condemned to repeat it.” That aphorism doesn’t count in 2021. If history disturbs you, cancel it.
Today, politicians of all stripes are ashamed and beg forgiveness for events that occurred hundreds of years before they were born. They try to break the internet in a race to appease the “woke,” while burnishing their image as caring, sensitive individuals worthy of your vote.
Prime Minister Justin Trudeau merits a best-performance Oscar for his righteous indignation about historical events, perhaps even believing that his words make one iota of a difference to a person or persons who have been dead for half a century or more.
His father wouldn’t agree.
In 1984, Opposition leader Brian Mulroney wanted Pierre Elliot Trudeau to apologise for the government interning Japanese citizens in World War ll. According to CBC News reporter Anthony Germain, Trudeau responded, “I do not think the purpose of a government is to right the past. It cannot rewrite history. It is our purpose to be just in our time.”
The #cancel culture has taken the apology a step further. They want to erase all remnants of the past that they find offensive. If you aren’t a “they,” your opinion doesn’t matter. They have amended the small-print mutual fund qualifier that “past performance is no guarantee of future results.” It now reads “ the past has nothing to do with the future.” George Orwell said it best in his book, 1984: The past was erased, the erasure was forgotten, the lie became the truth.”
It is a different world in 2021.
The S&P 500 and Nasdaq indexes are driving to new record highs almost daily. The impact of negative global headlines lasts as long as a donut near Homer Simpson.
And why not?
Interest rates are at all-time lows in Canada and the United States. The Bank of Canada’s policy-setting overnight rate is 0.25%, while in the US, the Fed’s overnight rate target is 0 to 0.25%. Even better, the European Central Bank rate is negative. Unfortunately, they do not pay you to borrow money, but they charge you for sitting on cash.
The availability of cheap money encourages leverage, and borrowed funds are tax-deductible against capital gains. Investors can borrow with confidence. Fed Chair Jerome Powell, Bank of Canada Governor Tiff Macklem, and European Central Bank President are on record, vowing to leave interest rates unchanged until they achieve their policy objectives. For Mr Powell, that means “not any time soon.” Mr Macklem is more specific-no rate hikes until into 2023.
There is more good news for markets. The US threw money at COVID-19 like it was tainted with the virus. The Trump and Biden Administrations spent $5.0 trillion in various relief packages and supports.
The US economy is re-opening rapidly and upwards of 159 million Americans received a $1,400 stimulus payment. That money will find its way into bars, restaurants, retail outlets, and provide an added lift to the economy. A large part of President Biden’s $1.9 trillion spending is for road and bridge repairs and improving the electrical grid, further goosing the economy.
Canadian’s will get details of their governments spending plans on April 19, when the Liberals table the first budget in two years. There is zero chance that they will cut spending and a spending increase may include a universal child care plan.
The US COVID-19 vaccination program is firing on all cylinders, with 195 million doses administered. They are averaging 3.35 million per day. At that pace, 75% of all Americans will be vaccinated in three months.
Canada is seriously lagging the US in the vaccine sweepstakes as only 20% of the population has received at least one short. However, markets are optimistic that the numbers will rise quickly, and the economy will benefit from a surge in consumer demand.
The global economic outlook is rosy, just ignore the doom and gloom.