Monthly House View - January 2021 - Download here
“Science knows no country” Louis Pasteur
At the time of closing 2020, a year of all extremes (unprecedented pandemic, record recessions, unprecedented response from economic policy, spectacular equity rebounds), one can wonder what awaits us. Will 2021 see a return to some kind of normality?
From a political and health standpoint, there is no doubt about it: a new president in the United States with a return to a more usual rhetoric and to more classic relations between nations; and a hope that the vaccination campaigns will put an end to the succession of lockdown/unlock phases. The race against the pandemic will have brought vaccines to the market in record time.
Social trends tell a different story and it is astonishing to see how the two lockdown waves in 2020 gave way to diametrically opposed reactions. The spring lockdown materialised a breach in our daily lives and gave birth to the somewhat naive idea of a “new world” (less consumerism, more focus on health and respect for the environment). On the contrary, the autumn lockdown showed how much the people wanted more than ever a return to the world before symbolised by simple aspirations, like: traveling again, going out, getting together and going shopping. The idea that our lives would go digital may have found its limit. Coincidently, the hope born from the successful vaccine trials this autumn gave rise to an outperformance of stocks linked to the real economy compared to those of the digital world.
The fight against global warming is undoubtedly the area in which a return to the past is not an option. The sustainability of our growth models is the central issue in overcoming the crisis; governments have decided to act on it and are turning their backs on fiscal austerity. Indeed the energy transition is one of the only areas where current and future generations can get into debt.
Something new emerges in this front: the convergence of environmental priorities of the United States, Europe and China. Indeed, Biden's America aims to return to the Paris Agreement and to make significant investments to transform the US energy model. For its part, China, now the world's leading CO2 emitter, has set itself an ambition of carbon neutrality by 2060.
No return to the past for Europe either. The history of European construction shows that it has progressed especially during phases of political or economic crisis, as much by necessity as by a clear conscience of the urgency. The crisis of the previous decade had settled the monetary debate to ensure the sustainability of the Euro Area. This pandemic was no exception to the rule and was also the catalyst for unprecedented progress in European budgetary solidarity.
The strong consensus around the idea of a strong and prolonged fiscal response also contrasts with the ideological consensus around fiscal austerity that prevailed during the Euro Area one sovereign debt crisis. This new, less frugal consensus reflects a pragmatic response to health, economic and social emergencies that with a context of low interest rates makes it possible to finance. More fundamentally, it is the stability of our governments and the survival of our democracies that is at stake, in the face of growing inequalities and social tensions already strong before the pandemic, and which it has only exacerbated. Here too, the future will tell if we have adopted an overly naïve view of the sustainability of our growing debt piles, which raises the question of the value of our currencies. Perhaps this is reflected in record soaring gold and bitcoin this year...
Monthly House View, 18/12/2020 release - Excerpt of the Editorial
December 23, 2020