Resident blog from Adam Parry.
First of all let me begin the first guff of the year by wishing you and everyone you love a very happy and – far more importantly – healthy 2021.
Now that pleasantry is off my chest, it’s time for normal service to be resumed. Time for a rant. Christmas telly. How dreadful was it this year when we really needed it to be off the charts.
ITV was just appalling. Re runs of Tipping Point and The Chase every day. Not even a decent film on Christmas Day. The Beeb was slightly better, chucking in a few decent films, but most of the Christmas specials were pants. Channel 4 was just as bad until they showed Raiders on Jan 2. It was left to Channel 5 to provide us with a few classics, but after the third showing of Oliver and Chitty Chitty Bang Bang even I had had enough.
There was only a couple of Bond films on ITV2, and they were of the Daniel Craig variety, not the brilliance of Rog or the late, lamented Sean. Even Timothy Dalton’s couple would have been welcome.
There was no Steve McQueen hurtling toward the Swiss border or Shoughie McFee getting machine-gunned on the wire of Stalag Luft 3 in The Great Escape. There was no Wizard of Oz “If I only had the noiiive”. There was no Michael Caine in a Muppet Christmas Carol. And worst of all, the only way you could get to blub uncontrollably at the end of Elf was if you subscribed to Sky.
An absolute travesty. Fortunately, Mrs P had to foresight to sign us up for a few streaming services, and of those Disney + proved to be the best of the bunch.
And the best of the bunch of the best of the bunch was without a doubt the tale of a small rat who has ambitions to be a cook. For as Gusteau always said “Anyone can cook”.
Yes, Ratatouille – guess which recipe will follow at the end of this piece – is a fantastic insight into the world of the professional kitchen. Sous chef, very important. Chef de Partie, very important. Commis, very important. And even young Linguine the pot wash has an integral part to play in the smooth running of a restaurant kitchen.
But my favourite character in the film comes in the form of Peter O’Toole’s acerbic restaurant critic Anton Ego.
And in terms of the markets, the following passage has always rung true.
Mustafa the waiter is looking to take Ego’s order on his arrival to review Gusteau’s after Linguine takes over the running of the kitchen.
Do you know what you’d like this evening, sir?
Ego replies “Yes, I think I do. After reading a lot of overheated puffery about your new cook, you know what I’m craving? A little perspective. That’s it. I’d like some fresh, clear, well-seasoned perspective. Can you suggest a good wine to go with that?
“With what, sir?
“Pespective. Fresh out, I take it”
“I am, uh…”
“Very well. Since you’re all out of perspective and no one else seems to have it in this BLOODY TOWN, I’ll make you a deal. You provide the food, I’ll provide the perspective, which would go nicely with a bottle of Cheval Blanc 1947.”
How very true. What we need when looking at the state of the markets as we head off into 2021 is a case of fresh, clear perspective.
And so I am going to try to attach some logic to the mainly illogical and put down a few predictions as to what we can expect over the course of the next twelve months.
Let me start with the easy one. Rates. Unless we see something truly remarkable, they ain’t going anywhere over the course of the year. One can only think that the global economy may need another shot in the arm at some stage to kick-start the economies after the latest bout of lockdowns, but one suspects that that will come in the form of another round of QE.
Thus the front end of the sovereign yield curves are going to be fairly static over the course of the year. But what happens further along the curves?
Well, out to the five year tenor I suspect not a great deal. Past that, should the vaccines work and the infection rates start to come down, we can expect a sell-off in the long-end. So if you are optimistic, it may be prudent to start factoring in 2-10’s steepeners, and I’d probably plump for bunds given the Brexit considerations in the UK and current political unrest in the US.
In terms of credit markets, I think we can expect a very similar pattern to last year with issuers taking advantage of the low rate environment to borrow cash on the cheap from an investor base clamouring for yield of any sort. We can also expect the rush to invest in ethically sound corporations to continue unabated. Look for massively over-subscribed deals across many sectors with only the occasional dog.
Equity markets are far more tricky. For anybody who has been reading these diatribes over the last three months – yes, it has been that long – you will know that I think most equity markets are ludicrously over-valued. And nothing has happened over the Christmas period to change my mind. As predicted, we ended 2020 at more or less record highs in US stocks despite the travails of the year And that rally has progressed even further this week. Anton Ego would consider it lunacy. So do I.
Nevertheless, you can only be a contrarian for so long before you turn into a boring old curmudgeon. So this year I am going to be more positive on the equity markets – a sure sign to sell…Ed – and expect a rise of 5-7% in US stock markets.
That said I do not expect it to be an easy ride. As we speak I am thinking about buying some puts on the Dow and the S&P for three reasons. 1) Markets need a significant correction. 2) We normally see a significant correction in February after setting record highs early in the year. And 3) The next three months will be crucial in terms of the virus and for the next few weeks those headlines are not likely to be positive.
So I would not be surprised to see a 20% pull back in the indices at some juncture, but this may provide the perfect opportunity to get on board that hoary, old market adage that has stood firm for the last decade. “Buy the dip. Buy the dip”.
European markets under-performed the US equivalents last year, but not by very much. In fact, the FTSE was the lowest performer thanks to the Brexit nonsense. Now that is hopefully out of the way we should see a rebalance, so I’m looking for a 10% rise in the index.
Finally the thorny subject of oil. Will the transport industry ever be the same? Possibly not. One suspects that the pandemic has done irretrievable damage to the airline industry and that it will take many years to get back to the same level of travel seen in 2019. The same can be said of the trains. Commuters and companies have realised that many businesses can be run remotely and that is likely to be the new norm. So demand for oil is likely to be muted for a few years, which is quite good for those of you that prescribe to the Peak Oil Theory, but that is another story. So I am going to put my neck out and set an end of 2021 level of $45 a barrel for Brent.
All of this is pure hypothesis because – as was the case last year – nobody including the politicians has a b******d clue of how this is all going to pan out. I would be fascinated to know what you think we have in store, so drop me a line and let me know.
Anyway, here as promised is Remy’s recipe for that famous French peasant dish.
First of all make a simple tomato sauce. Sweat onion and garlic for a few minutes until translucent and then add a tin of tomatoes, a few sprigs of time, salt and a pinch of sugar. Stew that down for on a low simmer for an hour until thickened
Meanwhile, slice courgettes and aubergines and fry until coloured in some good olive oil. Set aside and then repeat the process with red and yellow peppers.
To assemble, take a gratin dish and spread the tomato sauce along the base. Layer the fried courgettes, aubergines and peppers alternately over the sauce, working your way in from the outside of the dish. Once the tomato sauce is fully covered, drizzle liberally with extra-virgin olive oil and sprinkle on some smoked sea-salt and lots of freshly ground black pepper. Cover with a cartouche and bake in a hot oven for 45 mins to an hour.
To serve the Remy way, take a scoop of the cooked ratatouille and put in the middle of a bowl. Spread some of the reduced tomato sauce around the outside and drizzle with some reduced balsamic vinegar. Finish with yet more extra virgin olive oil and some fresh basil leaves.
Enjoy, and as ever have a great week.
On the Agenda:
- Tuesday: NFIB Small Business Optimism; JOLTS Job Openings
- Wednesday: CPI; Monthly Budget Statement.
- Thursday: Initial Jobless Claims; Import Price Index.
- Friday: PPI; Retail Sales; Industrial Production; Michigan Sentiment; Empire State Mfg.
- Monday: Sentix Investor Confidence.
- Wednesday: Italian Industrial Production; Area Wide Industrial Production.
- Thursday: German GDP.
- Friday: French CPI; Area Wide Trade Balance.
- Thursday: GDP; Industrial Production.
- Tuesday: Artificial Intelligence Symposium; Brainard speaks.
- Wednesday: Beige Book; Brainard and Clarida speak.
- Thursday: Powell speaks.
- Monday: Lagarde moderating panel discussion at One Planet Summit in Paris.
- Wednesday: Lagarde in online Q&A during Reuters Next event.
- Thursday: ECB minutes of Dec 9-10 meeting.
- Friday: Enria keynote speech at Banca d’Italia.