By Michael Every of Rabobank
Will markets xenomorph?
Payrolls on Friday almost achieved escape velocity at 850K vs. 720K expected. However, with unemployment up to 5.9% not down to 5.6%, and average weekly hours down to 34.7, while stocks went into a higher orbit, bond yields actually came down, closing at 1.42%. What would it take to give the reflation trade a booster rocket? Presumably at least a million headline, a plunge in unemployment, and a surge in both the work week and earnings. When does that happen?
Today’s follow-up will be muted because it is a US market holiday given yesterday Americans either did or didn’t celebrate Independence Day. We saw the usual hoopla in many places; and tweets from sitting politicians questioning the validity of July 4th and the Declaration of Independence; The New York Times noting it is becoming political to display the US flag; and a recent poll showing only a minority of Generation Z prefer capitalism to socialism, including only 66% of young Republicans. Of course the grass is always redder, and in the 1960s and 70s, a swathe of suburban America turned hippy before quickly becoming yuppie a decade later. Nonetheless, this is potentially a huge socio-economic change if sustained into a cohort effect rather than being an age or Covid effect: markets will move on it if policy ever does.
Perhaps there is also good reason then -beyond ego, mid-life crisis, and more money than sense- for billionaire Richard Branson to be trying to beat billionaire Jeff Bezos into space: “In space no one can hear you scream at billionaires”? It’s also the only vantage spot from which they can check all of their vast global property portfolios efficiently – so think of it as a landlord inspection. They will probably be joined in time by Elon Musk, who loves anything with the word ‘rocket’ in the name. And perhaps the billionaire(?) CEO of China’s ride-sharing app Didi might want to join given just two days after a $4.4bn US IPO, Beijing regulators started an investigation into data-security issues and have now told Chinese web-stores to delete the app immediately (The Global Times noting this was about “national security”). That will play well with any of US Generation Z who put their sparse savings into the IPO – and with anyone thinking we aren’t heading for a global splinternet.
Yet perhaps even space isn’t safe for billionaires. As Amazon presses ahead with the purchase of MGM studios, Disney, which owns the Alien franchise via 21st Century Fox, is to make an Alien TV series which, as Variety puts it “Will Be Class Warfare With Xenomorphs”. As the showrunner says: “it’s about time for the facehuggers and xenomorphs to sink their claws into the white-collar executives who have been responsible for sending so many employees to their doom.”
After all, the first Alien film featured pre-Reagan blue-collar “truckers in space” getting killed by a giant corporation for profit; the second saw a group of Reaganite space marines getting killed by the same firm for the same goal; the third saw prisoners die the same way; the fourth, a group of mercenaries; then Prometheus saw an Erich Von Daniken trillionaire get a group of scientists killed for profit; and Alien: Covenant had a group of idiots getting killed by the aliens created by the robot created by the trillionaire to try to find the real aliens for profit. After four decades of this, we will apparently now get to see the C-Suite of Weyland-Yutani Corporation getting eaten one by one – and viewers will (presumably) cheer at this great Robespierre levelling exercise/gorefest.
Which is ironically aimed to make vast amounts of profit for a giant corporation.
Notably, the horror genre is often an allegory to the social zeitgeist – and excess inequality is genuinely as terrifying as it gets. It enters like a facehugger, usually via a period of one-off reforms; but then these drop away and the host seems to recover and is still fine on the face of it. The damage inequality will eventually do is hidden as it gestates unseen, like an Alien embryo in the stomach. Yet it will eventually burst out into the world, killing the host, to great shock and surprise. Even then, it still seems small and not too much of a threat to the rest of the social group. Yet if it continues to grow, it can demonstrably rip societies into bloody pieces. There is no guarantee of a happy ending, where inequality is simply blasted out of an airlock.
We enjoy watching horror films because the monsters are projected elements of the dangers of the real world and the darker parts of our own psyche. In short, we watch because we know what they show us will always be with us. I doubt many viewers watching space CEOs getting eaten by aliens will be thinking that this is going to somehow boost their own meagre pay, or reduce the generous package of the CEO of Disney. The bond and stock markets both seem to agree.
That doesn’t mean there is no lesson in watching horror films – that too is part of the reason to do so. And indeed, we already see policies being floated to try to deal with inequality in various places “Leveling Up”; “Build Back Better World”; “Dual Circulation”, etc. – albeit all of them so far tentative and aiming not to offend the Weyland-Yutanis of this, or other, worlds.
But perhaps we will end up with a horror show for asset markets that sends our billionaires off into space to avoid paying tax. The latest policy idea to fight inequality from the UK Labour Party, which only narrowly held a safe seat in last week’s by-election, is to go further than the governing Conservative Party’s post-Brexit “Level Up” with a pledge to “Buy British”; to “make, sell and buy more in Britain”; and to build a “strongly patriotic policy platform” where “far more public contracts [are] awarded to British businesses….This would be tied in with an emphasis on securing more high-skilled UK jobs for the future in the green, financial technology, digital media and film sectors, and other industries in this country.” Perhaps that involves making movies about aliens eating CEOs in space, which Brits are rather good at. However, it is also potentially a step back to an inflationary world where the Brits made cars nobody wanted to drive – and there is a lot of that about.
Meanwhile, as the market continues to trade as if there aren’t any monsters, really, life shows us:
President Biden has said the US will respond if Russia is behind the series of cyberattacks that hit the country on Friday, which follow on from him telling President Putin at their recent summit that these were a red line;
Forbes reports Japan is reportedly closer to shifting towards a policy where it would fight alongside the US should the latter do so over Taiwan, which marks a huge structural change in its defense policy, and which will either increase tensions in the region, or ease them, depending on whom one listens to;
French President Macron and German Chancellor Merkel, who just had their request for an EU-Russian summit shot down by their European partners, are now shifting the focus of their negotiations to China, and will reportedly hold another video conference with Xi Jinping this week – presumably talking up the CAI deal frozen by the EU parliament, which would again underline how the EU cannot find one voice to speak with except on Northern Irish sausages; and
Fed-maven Zoltan Pozsar is warning about the mix of excess cash, QE, the debt ceiling, and reverse repos, suggesting a potentially explosive mix if money market funds rotate out of T-bills into the new reverse-repo program, which could drain excess reserves from the banking system.
Tell me – are we making our horror movies about the right things?