I have an important medical appointment this week. All should be ok, but ya never know. What I do know is that, unsurprisingly, my mind has been doing some interesting good news, bad news triple-salchows over the past week. Who needs to ‘doomscroll’ Twitter these days? The mainstream media is all over rampant inflation, financial market meltdowns, Ukraine horror and a Chinese growth shock unless…… you’re a Daily Mail reader. Yep, in that case you’re being treated to a ridiculous 7-day curry crime series in Durham. Oh boy. Back in the real world, I’m thinking about how media coverage of events can be skewed towards negative stories. But don’t blame the media entirely. Their audiences actually like bad news…
In the midst of pandemic chaos in 2021 American economics blogger, Matthew Yglesisas, highlighted a research paper on US media published by Bruce Sacerdote, Ranjan Sehgal and Molly Cook. The findings of a negative skew to stories on Covid-19 was not the surprise but the source of the stories did challenge existing perceptions. The study showed that partisan politics did not drive the negativity. In fact, conservative and liberal platforms alike emphasized the negative. However, the most striking observation was that “the most popular stories… have high levels of negativity for all types of stories”. This prompted Yglesias to deliver a rather depressing conclusion…
“In other words, the negativity bias in Covid coverage didn’t come from the liberal media being out to get Trump. It came from you, the reading and viewing public, who strongly prefer to consume negativity-inflected stories on all types of topics, creating a situation where the biggest and most influential media brands have gotten really good at delivering the negativity that the people crave.”
My personal sense of pandemic coverage was that the stunning science of delivering an effective vaccine in just over 9 months, remote working technology and the revolutionary funding decisions of states and global central banks never received the kudos they deserved. A more optimistic view of humanity might argue that the latest thinking in science, technology and finance saved the world. And……arguably, financial markets reflected that renewed optimism.
Many investment portfolios and pension plans would have clocked up 25-30% gains in 2021 and observed all was hunky dory until Vlad The Invader ruined things. This might be the consensus conclusion, but would be wrong. Chinese vaccine struggles with C-19 Omicron variants, accelerating inflation, rising global interest rates and a correlated rollover in technology stock risk/valuations were all growing in macroeconomic influence well before the end of 2021. As an illustration, the tech-heavy Nasdaq stock index peaked in November 2021, months before the late February invasion of Ukraine. Agreed, the numbers are ugly; a 27% collapse on the Nasdaq, bond markets’ worst start to a year in history and $20 trillion wiped off the value of global stock markets. However, the sense that we are back to early 2020 levels in financial markets(we are) should not necessarily be a source of gloom or require us to revel in the scary media headlines. The following potential headlines won’t be click thrillers but are very possible:
China Sources New Vaccine
It is striking that the best data analytics platform for tracking macro factors (Quant Insight) was recently showing China as the most powerful driver of markets right now. Another data point is also catching my eye; Covid lockdowns in China are affecting supply chains/delivery times at a quantum of 8 standard deviations(Z-score) from normal. In early 2020, at the start of Covid, Z-scores spiked to 11. So, things are almost as bad as early 2020! The puzzling thing is why the Chinese authorities are pursuing a zero Covid lockdown strategy? Vaccine efficacy is a major factor, and pride. However, the CCP Politburo, are not reckless. If economic turmoil threatens power they will act and it’s entirely possible they will use international vaccines to open up their economy. This also would be a major positive for the global economy.
Mega-Deals Shock Wall Street
The behavioural aspects of financial markets never cease to amaze. The power of the herd overwhelms rational thought and ensures that market trading is possibly the only human activity where the buyers will ignore the “on sale” signs but stampede towards an all-time-high priced offer. That’s the herd and it is interesting to read the reports of Robinhood, Reddit and meme-stock traders feeling real pain and leaving the ‘game’. Meanwhile, some longer-term thinkers are starting to flex their buying muscles. Check out the following:
- 1.Warren Buffett had been selling stocks for almost 2 years but in recent months has ploughed $50 billion into new purchases. That’s the most money deployed by Buffett in a quarter since 2008. Note that date and the 13 year bull market from March 2009.
- Elon Musk’s purchase of Twitter has been analysed to death from a media, freedom of speech and governance perspective. But, he’s pretty good at making money as the world’s richest man. So, should we be more intrigued that not only did he buy Twitter “on sale” at a 30% discount to its peak price but it seems he’s not alone in smelling a bargain. In recent days it has emerged that savvy investment names like Sequoia, Andreessen Horowitz (a16z), Fidelity, Brookfield and Larry Ellison have pitched $7 billion into the Twitter funding pot. Expect more of this influential buyer activity. There are a plethora of technology stocks which are down more than 70%. How you fixed for Netflix? Peak valuation last year of $320 billion, today try $76 billion. Once there was a stampede to buy it on a valuation of 11x its annual revenues, today nobody will touch it on 3x. How about Zoom, PayPal, DocuSign, Shopify, Peloton, DraftKings, Pinterest or Spotify who are all on the ‘70% off’ sales rack?
Bond Funds See Inflows
Boring, boring bonds. Ehhhh… not so fast. Bond markets rule the world. They are the instruments which hold “other people’s money” which, in turn, is borrowed by companies and governments around the world. Global debt was approaching $300 trillion in 2021 which puts global stock markets worth $120 trillion(then) in quivering context. However, a vicious circle of inflation and central bank interest rate hikes to dampen activity has triggered $2.5 trillion of losses in global bond markets from their peak. The bottom line is that interest rates and bonds set the “cost of money” for ALL financial markets.
All these instruments(equities, commodities, cash, crypto, property) compete for money but that money keeps flowing through the system. This is not 2008 when money/liquidity froze. At some point there will be an equilibrium struck between inflation, interest rates and economic activity(slowing in Germany, China, emerging markets) and money will seek the “safe haven” and income(yields) which bonds offer. Note, today you can earn more than 3% on US Treasuries guaranteed by the US government. When bonds are bought(inflows) the “cost of money” falls and that helps all asset classes and economic activity.
Hold My Beer….
Implicit in the final point about the cost of money is that bad headlines in the short term (economic slowdown) will lead to more encouraging but less click-friendly headlines in the future. Don’t expect the media to seek the positive, they know their audiences! Also, do not presume that audience demand for negativity is just a Trumpian US phenomenon. The nuance in the Sacerdote, Sehgal and Cook paper was that the audience demand for negativity seems to exist cross-nationally, but the US stands out in that its domestic media is more willing to supply it.
One suspects, as do that research team, that US capitalism and private media ownership has been typically efficient but then the UK might say “Hold my beer….”. The #Beergate nonsense forcing opposition Labour leader, Keir Starmer, to commit to resignation if fined for a Covid rules breach has generated the most baffling response in the media. Rather than celebrating the fact there is one leader of integrity and principle in Westminster, it has triggered a wave of media condemnation or caution that Starmer’s honesty has put undue pressure on the investigating Durham police force. Oh boy……I’m up for some good news anyway.
“In your head, in your head
Zombie, zombie, zombie-ie-ie
What’s in your head, in your head
Zombie, zombie, zombie-ie-ie… “
– The Cranberries (1994)