I have adopted the position that when a central bank allows its government to overspend and abuse its currency, something has to give. You could say this is one of the unwritten laws of fiat currencies. Time and time again history has proven this to be true and it is the reason many people claim gold is the only true form of money that cannot be corrupted. In a world where everything seems subject to manipulation, this claim about gold is still up for debate.
The overspending by governments coupled with inflation has really started to affect the perceived value of currencies in relation to other currencies. As these relationships break the losers are the people holding the de-valuated currency. Of course, many factors feed into how we value a currency but the crux of this article is not about whether a currency is over or undervalued but rather what a country must do to defend its value if it comes under attack.
Brent Johnson of Santiago Capital is credited with coining the term the “Dollar Milkshake Theory.” It explains how our debt-based monetary system can cause the US Dollar to rise despite the increasing liquidity injections around the world. Whether this was a “grand master plan” or a situation that just developed over time, it is something that may bode well for the dollar. Johnson recently took part in a discussion that included subjects such as the future price of oil, housing, and the probability of a huge global huge recession.
Johnson conveys what many of us see as a truth that haunts fiat currencies. This is rooted in the fact that when the value of a currency falls, a country and its central bank cannot save both its currency and its bonds. In his “slightly edited” words;
“The problem is you cannot, and this is for every country, the US included, again, there’s a progression in how it’ll go, but you cannot save both the bond market and the currency market because they work at cross purposes. Whatever you do to save the bond market hurts the currency. Whatever you do to save the currency hurts the bond market. And every central bank in history has promised they won’t sacrifice the currency, and every central bank in history has ultimately sacrificed the currency.
And the reason they always choose the currency over the bond or the reason they always choose to sacrifice the currency over the bond market is for two reasons. One, the currency affects the citizens more than the government, and the bond market affects the government more than citizens. So they’re going to bail themselves out before they bail the citizens out. And the second thing is if the bond market blows up and the banking system blows up, there is no longer a distribution system for the government to raise money.
So they can’t let the bond market blow up because then they can’t get money anymore. And then if they can’t get money, they can’t operate. So this is a very long way of saying that I understand why the market moved the way it did. I think maybe in the short term it makes sense, but in the medium to long term, it doesn’t make any sense to me at all. Again, kind of watch what they do, not what they say.”
He later added “The problem, as we’ve kind of figured out and found out that it’s very hard to just get four for four or 5% inflation. It goes from 2% to 12% pretty quickly. They don’t have as much control as they think they do, right? And the problem with four or 5% inflation, you can kind of get away with it because it’s annoying and it is frustrating, but it’s not totally ruining your life. But with 8, 9, 10, 12, 15, 80% inflation, that starts to ruin the pledge life, as you mentioned. And that’s when they start to push back from a political perspective. And that’s what central banks and governments don’t want. They don’t want the populace revolting”
When you think about the true motivators driving this “system,” it is logical the government and central banks would throw the populace under the bus. This is about their survival. As to the question of equal pain, those in power justify taking raises to offset the impact of inflation under the idea we “need them” to steer things forward for the “greater good.”
While Johnson’s remarks were aimed at what is most apparent in the actions of Japan, this truth is problematic to all fiat currencies. For more on the Dollar Milkshake Theory see;
Companies are saying that the Q3 revenues will be down a bit. What’s really happening and how long will this last? Chief Economist for Avalon Advisors, Sam Rines, and a returning guest answers that with our first-time guest Marko Papic, the chief strategist for Clocktower Group.
In addition, both the Michigan Consumer Sentiment and the NY Manufacturing survey down as well. Watch what the experts are seeing and what they think might happen early in 2022.
This QuickHit episode was recorded on August 19, 2021.
The views and opinions expressed in this Sentiment has soured: How will governments and companies respond? (Part 1) QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.
TN: So I guess we’ve started to see some negative news come in with the Michigan Consumer Sentiment with the New York Manufacturing Survey and other things. Most recently, we had some of the housing sentiment information come in. And I’ve heard companies talk about their revenues for Q3 will be down a bit. And so I wanted to talk to you guys to say, are we at a turning point? What’s really happening and how long do you expect it to last? Marko, why don’t you let us know what your observation is, kind of what you’re seeing?
MP: Well, I think that, you know, the bull market has been telling us that we were going to have an intra cyclical blip, hiccup, interregnum, however you want to call it since really March. And there’s, like, really three reasons for this. One, the expectations of fiscal policy peaked in March. Since then, the market has been pricing it less and less expansion of fiscal deficits. Two Chinese have been engaged in deleveraging, really, since the end of Q4 last year, and that started showing up in the data also on March, April, May.
And then the final issue is that the big topic right now is something we’ve been focused on for a while, too, which is this handover from goods to services, which is really problematic for the economy. We had the surge of spending on goods, and now we all expected a YOLO summer where everybody got to YOLO. It really happened.
I mean, it kind of did. Things were okay but, that handoff from good services was always gonna be complicated, anyways. And so I’m going to stop there because then I can tell you where I stand and going forward. But I think that’s what’s happening now and what I would be worried about. And I really want to know what Sam thinks about this is that the bull market been telling you this since March. There’s some assets that were kind of front load. The one asset that hasn’t really is S&P 500, as kind of ignored these issues.
TN: Right. Sam, what are you seeing and what do you think?
SR: Yeah, I’ll jump in on the third point that Marko made, which is that handoff from services or from goods to services. That did not go as smoothly as was planned or as thought by many. And I don’t think it’s going to get a whole lot better here. You have two things kind of smacking you in the face at the moment. That is University of Michigan Consumer Sentiment and the expectations. Neither of those came in fantastically. Today isn’t great. Tomorrow isn’t expected to be great.
Part of that is probably the Delta variant, depending on what part of the country you’re in, that is really beginning to become an issue. Not necessarily, I mean, it’s nowhere near as big of an issue as COVID was for death and mortality in call it 2020. But it’s a significant hit to the consumer’s mindset. Right?
And I think that’s the part, what really matters is how people are thinking about it. And if people are thinking about it in a fear mode, that is going to constrain their switch from goods to services and the switch from goods to services over time is necessary for the economy to begin growing again at a place that is both sustainable and is somewhat elevated. But at this point, it’s really difficult to see exactly where that catalyst is going to come come from, how it’s going to actually materialize in a way that we can get somewhat excited about and begin to actually become a driver of employment. We do need that hand off to services to drive employment numbers higher.
And what we really need is a combination of employment numbers going higher, GDP being sustainably elevated to get bond rates higher. So I think Marko’s point on what the treasury market is telling us should not be discounted in any way whatsoever.
The treasury market is telling us we’re not exactly going to a 4% growth rate with elevated inflation.
SR: It’s telling us we’re going to something between Japan and Germany at this point.
TN: Yeah. That’s what I’m a bit worried about. And with the consumer sentiment especially, I’m a bit worried about sticky sentiment where we have this Delta variant or other expectations, and they remain on the downside, even if there are good things happening.
Do you guys share those worries, or do you think maybe the Michigan survey was a blip?
SR: Oh, I’ll just jump in for 1 minute. I don’t think it was a blip at all. I think what people should be very concerned about at this point is what the next reading is. That reading did not include the collapse of Afghanistan. It did not include any sort of significant geopolitical risk that is going to be significant for a number of Americans.
Again, it’s kind of like Covid. It might not affect the economy much. It’s going to affect the psyche of America significantly as we move forward. And if consumer sentiment were to pick up in the face of what we’ve seen over the last few days, I would be pretty shocked.
TN: It would be remarkable. Marko, what do you think about that?
MP: So I’m going to take the other side of this because I have a bet on with Sam, and the bet is, by the end of the year, I’m betting the 10-year is going to be closer to 2%. He’s betting it’s going to be closer to 1%. So he’s been winning for a long time, but we settled the bet January 1, 2022.
Here’s why I think I would take the other side of a lot of the things, like when we think about where we’re headed. So first, I think there’s three things I’m looking at. There’s really four things. But the fourth is the Fed. And I’m going to like Sam talk about that because he knows a lot more than I do. The first three things I’m looking at is, as I said, there are reasons that the bond market has rallied. And I think a lot of these reasons were baked in the cake for the past six months, or at least since March.
The first and foremost is China. And China is no longer deleveraged. The July 30th Politburo meeting clearly had a policy shift, but I would argue that that been the case since April 30. They’ve been telling us they are going to step off the break. And, quite frankly, I don’t need them to search infrastructure spending a lot. I don’t need them to do a lot of LGFB. I just need them to stop the leverage. And so they’re doing that.
And the reason they’re doing that is fundamentally the same reason they crack down on tech. And it has to do with the fact that Xi Jinping has to win an election next year. Yeah. And an election. It’s not a clear cut deal. He’s going to extend his term for another five years. CCP, The Chinese Communist Party is a multi sort of variant entity, and he has to sell his peers in the communist party that the economy is going to be stable.
And so we expect there to be a significant policy shift in China. So one of the sort of bond bullish economic bearish variables is shifting. The second is fiscal policy. Remember I mentioned that in March, investors basically started, like the expectations of further deficit increases, basically whittle down. This was also expected.
The summer period was also going to be one during which the negotiations over the next fiscal package were going to get very difficult. I would use the analog of 2017. Throughout the summer of 2017, everybody lost faith in tax cuts by the Trump administration. And that’s because fundamentally, investors are very poor at forecasting fiscal policy. And I think it has to do with the fact that we’re overly focused on monetary policy. We’re very comfortable with the way that monetary policy uses forward guidance.
I mean, think about it. Central bankers bend over backwards to tell us what you’re going to do in 2023. Fiscal policy is a product of game theory, its product of backstabbing, its product of using the media to increase the cost of collaboration, of cooperation. And so I think that by the end of the year, we will get more physical spending. I think the net deficit contribution will be about $2 trillion, the net contribution to deficit, which is on the high end. If you look at Wall Street, most people think 500 billion to a trillion, I would take double of that.
And then the final issue is the Delta. Delta is going to be like any other wave that we’ve had is going to dissipate in a couple of weeks. And also on top of that, the data is very, very robust. If you’re vaccinated, you’re good. Now, I agree with everything Sam has said. Delta has been relevant. It has, you know, made it difficult to transition from goods to services, but it will dissipate. Vaccines work. People with just behavior. So.
TN: Let me go back to the first thing you mentioned, Marko, is you mentioned China will have a new policy environment. What does that look like to you?
MP: There’s going to be more monetary policy support, for sure. So they’ve already, the PBOC has basically already told us they’re going to do an interest rate cut and another RRR cut by the end of the year. Also, they are going to make it easier for infrastructure spending to happen. Only about 20-30% of all bonds, local government bonds have been issued relative to where we should be in the year. I don’t think we’re going to get to 100%. But they could very well double what they issued thus far in eight months over the next four months.
So does this mean that you should necessarily be like long copper? No, I don’t think so. They’re not going to stimulate like crazy. The analogy I’m using is that the Chinese policy makers have been pressing on a break, really, since the recovery of Covid in second half of 2020. They’ve been pressing on the breaks for a number of reasons, political, leverage reasons, blah, blah, blah. They’re not going to ease off of that break. That’s an important condition for global economy to stabilize.
Thus far, China has actually been a head wind to global growth. They’ve been benefiting from exports, you know, because we’ve been basically buying too many goods. They know the handoff from goods to services is going to happen. Goods consumption is going to go down. That’s going to hurt their exports. On top of that, they have this political catalyst where Xi Jinping wants to ease into next year with economy stable.
Plus, they’ve just cracked down on their tech sector. They’re doing regulatory policy. They have problems in the infrastructure and real estate sectors. And so we expect that they will stimulate the economy. Think about it that way. Much more actively than they have thus far.
TN: Great. Okay. That’s good news. It’s very good news. Sam?
SR: Yeah. So the only push back that I would give to Marko and it’s not really pushback, given his assessment, because I agree with 99% of what he’s saying. But the one place that I think is being overlooked is, one thing is the fiscal policy with 2 trillion is great, but that’s probably spread over five to ten years, and therefore it’s cool. But it’s not that big of a deal when it comes to the treasury market or to the economic growth rate on a one-year basis. It’s not going to move the needle as much as the middle of COVID.
TN: Let me ask. Sorry to interrupt you. But when you say that’s going to take five to ten years, when we think about things like the PPP program isn’t even fully utilized. A lot of this fiscal that’s been approved over the last year isn’t fully utilized. So when these things pass and you say it’s going to take five to ten years, there’s the sentiment of the bill passing. But then there’s the reality of the spend. Right. And so you just take a random infrastructure multiplier of 1.6 and apply it.
There’s an expectation that that three and a half trillion or whatever number happens, two trillion, whatever will materialize in the next year. But it’s not. It’s a partial of it over the next, say, at least half a decade. Is that fair to say?
SR: Correct? Yeah. Which is great. It’s better than nothing in terms of a catalyst to the economy. The key for me is it’s not being borrowed all at once. It’s not being spent all at once. Right.
If it was a $2 trillion infrastructure package to be spent in 2022, I would lose my bet to Marko in a heartbeat. It would be a huge lose for me, and I would just pay up. But I would caution to a certain degree, it’s $200 billion a year isn’t that big of a deal to the US economy, right. That’s a very de minimis. Sounds like a big number, but it’s rather de minimis to the overall scale of what the US economy is.
And you incorporate that on top of a Federal Reserve that’s likely to begin pulling back, or at least intimate heavily that they’re going to begin pulling back incremental stimulus or incremental stimulus by the end of 2021 and 2022. And all of a sudden you have a pretty hawkish kind of outlook for the US economy as we enter that 2022 phase. And it’s difficult for me, at least, to see the longer term, short term rates, I think, could move higher, particularly that call it one to three year frame. But the ten to 30-year frame, for me is very difficult to see those rates moving higher. With that type of hawkish policy in coming to fruition, it’s kind of a push and pull to me. So I’m not obviously, I don’t disagree with the view that China is going to stimulate and begin to actually accelerate growth there. I just don’t know how much that’s actually going to push back on America and begin to push rates higher here.
I think we’ve had max dovishness. And strictly Max dovishness is when you see max rates and when you begin to have incremental hawkishness on the monetary policy side and fiscal side. And 2 trillion would be slightly hawkish versus 2020 and early 2021. When you begin to have that pivot, that it’s hard for me to see longer term interest rates moving materially higher for longer than call it a month or two.
TN: Okay, so a couple of things that you said, it sounds like both you agree that China is going to do more stimulus. I think they’re late. I think they should have started five or six months ago, but better now than never. Right. So it sounds to me like you believe that there will be the beginning of a taper, maybe a small beginning of a taper late this year. Is that fair to say.
A returning guest joins us for another QuickHit talking about how the current market unknowns are affecting the economy, and what are these “unknowns” anyway? Independent trader Tracy Shuchart discusses with Tony Nash about the “buy-everything” market and why is it happening despite the worries and crashes of economies because of COVID. We’ve also looked at the crude oil market and whether it will recover or not and how? She also shares what she thinks about the regionalization and shifts in supply chain.
This QuickHit episode was recorded on August 14, 2020.
The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.
TN: It feels like the markets have taken a breather this week. Is that what you’re seeing and also what are we waiting for?
TS: You notice all this entire summer, actually, that it’s been a buy-everything market. Bonds are up, equities are up, gold’s up, crude oil’s up, across the board, everything was up. Commodities, equities, fixed income, and then just starting in August about a week, week and a half ago, we started seeing some of that error let out of those sales.
Equities are still grinding higher but gold futures reached 2,089 dollars, and then came off to 200 dollars really quickly. It has stalled out over the last couple of days.
Crude oil in general, this summer has been stuck in a range. So, I guess you could say OPEC did their job. They wanted to stabilize the oil market. They did that.
Then this week we’ve seen some of the air come out of bonds. So I think, right now, it was kind of buy-everything. We had all this government stimulus, we had central bank stimulus and now we’re at the point where the government stimulus is out. The extra unemployment, PPP loans, there’s no more checks things like that. And then we have the election come up. The markets are waiting to see what’s going to happen.
TN: And RobinHood closed their api. So, we don’t know what the Robinhood traders are doing anymore.
TS: Yeah, so it just seems like there’s a lot of things that are unknown. If you look at the vix curve structure you see the kink in that November area. So, the markets are forward looking at that as an unknown. So, these next couple months might be either going to be flat until we find out or it’s going to get really volatile.
TN: Right, the one that really told me that we are in a pause is when gold turned around. When we started to see gold turning around and we’ve seen it paused where it is now, that’s really what showed me that things have changed or things have at least slowed down. And so, are we waiting for clarity around stimulus? Because I don’t think it’s earnings or anything like that that we’re looking for. It really does, as you said, kind of a stimulus-driven market. Is that really the next thing that we’re looking for?
TS: I think it’s a combination of things. Fed purchases have curtailed a tiny bit. We still have an unknown about what’s going to happen and congress just adjourned for recess without a decision. So, we won’t find out what a decision is really probably until September. That leaves a whole unknown, especially, when you’re talking about that extra unemployment.
The big thing is the election because we don’t know what the market’s going to do. If there’s a Biden win, that will only be a sector rotation in my opinion, because of what their agenda is. Everybody’s just very apprehensive right now. They are pulling back on, their involvement in the market being that there are a lot of big unknown factors out there right now.
TN: It’s really one of the only recessions where incomes have actually grown during the recession, which is weird. We’ve seen retail sales and industrial production in recent months come in and they’re actually okay. It seems like the breaks are put on that with stimulus stopped as well. The question really about being stagnant or rising? Or is there a possibility that we tip over and start to decline if stimulus isn’t forthcoming by the end of August or early September?
TS: That’s a possibility that we see a pullback in the markets absolutely. I don’t think you’re going to see anything, like we saw obviously back in February. But I could definitely see a market pull back just on people’s apprehensions of the unknown.
TN: As you mentioned OPEC and that crude oil has settled and it’s been horizontal for the past couple months. What would move that either way? Do you see airlines coming back online? Do you see major events happening that would really push the oil price up? Or do you think we’re just also in a waiting pattern there?
TS: We’re in a waiting pattern. But from what I’m seeing, the fundamentals are improving. Even though people don’t really want to see that. I look at driving patterns not only in the States but driving patterns in the world. I look at airlines and things of that nature and we are seeing a slight improvement. Everybody’s looking for a big crash in oil prices again but I don’t foresee that at this point. Unless, obviously, something fundamental changes, like the whole world goes on a lockdown again or some unforeseen event happens. But right now, the crude oil market looks pretty strong. We’re still over supply but we’re working off that oversupply. Especially going forward into 2021, when that supply really starts to be worked off, then we have a Capex problem. We’re gonna have a supply problem. I can forsee the oil prices even going higher into next year. But right now, I would say we’re stable to drift higher at to the end of the year. We are hitting that soft season. But again, I don’t see the oil market really pulling back that much at this point.
TN: Is the back-to-school factored into your expectation of rising oil prices or would that accelerate it?
TS: I believe that people will be apprehensive to send their kids on a school bus. So they’ll probably be driving them to school. That’s actually oil demand positive for me.
TN: Our view is to see oil grind higher into the end of the year. As of August 1st, that was our view as well. I’m also curious about your views on the dollar. Do you see any dramatic movements either way in the dollar or are we in the low 90s for the next few months?
TS: The market is so oversold at this point and everyone is so leaning bearish. I wouldn’t be surprised in he next couple of months if prices don’t go lower that people start to unwind those short trades and we could see not a huge spike in the dollar. But just a general unwind of that shortness.
TN: Great, okay, is there anything out there that you’re seeing that’s really interesting that we should know about? It’s late summer. People are tired. They’re not really all into work. Is there anything that you’re looking at that we’re not really paying attention to?
TS: The lumber market. I sent out a few tweets about that. I think that’s definitely something to watch because the housing market is doing better than anticipated. However, we don’t need things like extra ten twenty thousand dollars added on housing costs for new home builds. So, that’ll put a very big strain on the market and on home builders. So that’s definitely something to watch at this point.
TN: I noticed if you go to home depot, the lumber section is empty. That’s not where home builders go, but that’s what I see as a consumer is. It’s just empty. There look to be seriously obviously. There’s demand pulled but there really seems to be some sort of supply issue there as well.
TS: Yeah, there’s a supply issue. A lot of the mills have been closed like they’ve been closing for the last couple of years because the demand hasn’t really been that high, well at least in British Columbia. But with this new surge, I’m hearing that tons of mills are back up and running shifts 24/7 now. Even smaller mills that you used to do little to no business are back up and running. So, I think that looking forward October, November, we should see some more supplies.
TN: What we’ve seen since COVID from toilet paper to meat processing to lumber is real stress put on supply chains. And from your perspective as a portfolio manager and a trader, do times like this make you concerned about the stability of the U.S. economy or do these tests make you feel like the people participating in that economy are making their supply chains more resilient? Do you think people are actually investing to make those things more resilient or do you think they’re just getting through and they’ll forget about it within a few months?
TS: No, we are seeing some improvement on supply chains and moving forward. There are companies that are diversifying out of China. It’s in supply chains closer to the U.S., Mexico, Latin America. This particular incident, this COVID really made people rethink and reassess things and I think we are seeing changes. It’s not easy to move supply chains obviously, right? So, it’s just going to take some time but I definitely see in the markets where companies are changing.
Now that the bull run has started, Tony Nash CEO and Founder of Complete Intelligence joins BFM 89.9 in another global markets discussion. What’s behind this rally and will it be sustained? They also discuss OPEC, the Brent price and its future, Europe’s fiscal stimulus, the ECB, and the resumption of trade war between the U.S. and China.
On the back of an emerging bull run in Asia and the U.S., we reach out to Tony Nash, CEO of Complete Intelligence, for his thoughts on whether or not this momentum can be maintained, oil prices, as well as the ECB’s bond purchase programme.
Produced by: Michael Gong
Presented by: Wong Shou Ning, Lyn Mak
BFM: U.S. stocks extended their rally into the eighth straight day as investors clung to optimism for quick recovery from the pandemic. So the Dow Jones closed up 2.1 percent. The S&P 500 closed up 1.8 percent, and NASDAQ was up 0.8 percent. In fact, NASDAQ in the intraday trading did touch an all-time high. It’s as if COVID-19 never happened.
Meanwhile, Asia also had a very good run. Nikkei 225 closed at 1.3 percent. Shanghai was barely up, though. It was flat at 0.1 percent. Hang Seng was up 1.4 percent. Singapore was the big surprise here. We talked about it yesterday. The banking stocks were up and this caused the Straits Times Index to go up by 3.4 percent. Meanwhile, on the FBMKLCI, our market was up 2.1 percent. Also on the back of banking stocks, public bank RHP saw almost a pulping double-digit gains.
Pandemic? What pandemic? Never happened.
So this morning, for more insight into global markets, we have on the line with us Tony Nash, CEO of Complete Intelligence. Thanks very much for joining us this morning, Tony.
Now, equities have recently exhibited strong bullish momentum in both Asia and the U.S.. What’s behind this rally? And is it sustainable?
TN: I think a lot of it is the monetary policy expectations and the stimulus expectations washing through. It’s a lot of hope around activity in the summer, say, for crude prices, driving and consumption. There’s an expectation that there’s been some pent up consumption because of COVID. Some of this is coming back. It’s key to know that the U.S. markets are still 10 percent below where they were pre-COVID, 10 percent or more. So it’s not completely as if things never happened, but it has come back relatively quickly. The S&P, for example, was at around 2300. So we’ve climbed about 700 points in the S&P 500 since the nadir of COVID.
BFM: I always ask our commentators this, and I’m going to ask you also. Why the disconnect between what is happening on Main Street versus what’s happening on Wall Street.
TN: There’s an expectation that most publicly traded companies are going to pack as much bad news into Q2 as possible. And so they’re just throwing the kitchen sink into Q2. So that should mean pretty clear sailing for the rest of the year, assuming that it is 2020 and all. So anything can happen. But assuming that there isn’t another major catastrophe, things should be pretty clear for the rest of the year if every- and anything that could go wrong goes into Q2 data.
BFM: Brent has also erased some of its recent gains and is back below the $40 a barrel mark with the OPEC meeting now in doubt. What do you think oil prices will be heading?
TN: Our view is that things have been pretty range traded. We don’t see things going up to, say, $50 anytime soon. It’s possible. But we’ve expected things to stay pretty range traded until probably August or so.
We’re going to see daily rises and we’re going to see falls. But prices have come back a little bit on some drawdowns we’ve seen in storage and expectations around driving. Although, It’s not a perfect substitution for flying. And those volumes will still be down until we start to see people get back on planes. And until we start to see commuters back on their daily drives, we really don’t expect to see things come back above, say, $50 for Brent.
BFM: Shifting to Europe. The ECB is expected to expand its bond repurchase program this Thursday. So they’ve got a currency 750 billion euros outlay. Is that enough or do you think they need to increase it?
TN: It’s not enough. But I don’t know that Europe really has the financial wherewithal to do much more. They are not a fiscal union. And so they’re really having to contort their mandate to make sure that they can do this. This is really pushing Europe and the ECB and the concept of a quasi-fiscal union under the E.U. is putting real pressure on that.
So the limits of the monetary, not fiscal union are really pressed. And when you look at things like the insolvencies we saw in Greece and Italy and other places in southern Europe over the last 10 years, places like Germany are just tired of fiscal stimulus of other countries in the EU.
BFM: And if you look at the equity markets in Europe, that’s been also the lag out. Do you think there’s any opportunities there or is it a similar situation whereby the corporates there are going to not perform up to par?
TN: No, we don’t think they’ll perform up to par. Until we see countries beyond Germany really lift some of these lockdowns in a big way, it’s going to be really slow going. It’s strange how we’ve seen these protests really go against the lockdown. We may actually see some of these countries rip the Band-Aid off, because if you have tens of thousands or hundreds of thousands of protesters out there, it may be a situation where you can just say, “Well, lockdown’s over,” and you may start to see consumption patterns come back to normal. That would be a good thing for markets. That would be a good thing for companies. But European companies, especially European banks, remain troubled. And I think this crisis has really forced those banks to look in the mirror. And if markets are functioning well, then we’ll start to see some consequences, particularly for European banks.
BFM: Thank you very much for speaking with us this morning, Tony. And that was Tony Nash, CEO of Complete Intelligence.
He made some comments there about Brent crude, which he doesn’t really expect to come above the fifty dollars per barrel mark until perhaps we see planes start flying again. But the Trump administration has just made an announcement to that effect, saying that they are suspending passenger flights to the U.S. by Chinese airlines effective June 16th.
So the U.S. government said in a statement that it was responding to the failure of the Chinese government to allow U.S. carriers to fly to and from China. Now, this hasn’t, of course, been good for the tensions that have already been flaring between the two countries over the handling of COVID-19, as well as the treatment of Hong Kong.
China recently paused some agriculture imports after Trump threatened to limit the policy exemptions that allow America to treat Hong Kong differently than the mainland.
And that was done. The global economy was cheering and it looks like they’ve started fighting again. I think I’m just curious, what else is there to fight over? Because there’s been soybeans, beef, pork imports, corn, and now airlines.
U.S. airlines did see a bit of a share surge amidst the broader market rally and signs that travel demand is starting to rebound. Boeing was up 13 percent at one point after a report from IATA indicated that recovery was underway for global airlines.
So looks like we’re going to be watching that space as well, quite closely.