The upcoming US Thanksgiving holiday is usually a time for families to gather and give thanks. However, this year the COVID pandemic looms large, and many will be unable to celebrate normally. Nevertheless, we have a Thanksgiving tradition at Macro Hive where we find charts that give us some glimmers of hope. We continue that tradition, and so here are eight for 2020:
(1) Pollution has fallen sharply. Planet Earth has long needed a break from humans’ polluting activities, and this year it got one. The virus was enough to halt much economic activity, and with it transport systems slowed down. And whatever measure of pollution one used, whether Nitrogen dioxide (NO2) or carbon emissions, they have all fallen (Chart 1).
(2) People feel good about their job situation. Oddly for a recession, this year household incomes didn’t drop, and banks continued to lend. In some ways, this was less a recession than an unexpected protracted bank holiday. A regular survey of US households has found that people expect no major changes to their job situation, which contrasts previous recessions when they expected a worsening (Chart 2). That comes even though many are hearing lots of bad news about jobs.
(3) 2020 saw huge gyrations in growth, but stability is expected in 2021. In Q2, GDP growth fell up to 40% (annualised) in some parts of the world but then bounced back by just as much in Q3 (Chart 3). Much of this follows the patten of enforcing and lifting lockdowns. But, looking at economists’ forecasts for 2021, the period of growth volatility is behind us, and we should see sequential positive GDP growth in every quarter.
(4) Mortgage rates have fallen to new lows. Another paradox of this year’s economic weakness has been the strength in the housing market. This is likely due to the collapse in mortgage rates as central banks have cut rates. The cost of servicing a mortgage is likely the lowest in history (Chart 4).
(5) China’s central bank didn’t expand its balance sheet. Around the 2008 financial crisis, China’ central bank, the PBoC, massively expanded its balance sheet. This led to lots of uneconomic lending across the economy. The PBoC has been much more conservative this time, barely changing its balance sheet (or policy rates) over 2020 (Chart 5). This contrasts the Fed.
(6) US stocks may not be at valuation extremes. Many argue that US stocks are at valuation extremes. For example, the Warren Buffet valuation indicator which compares the US stock index with US GDP is higher than even the 2000 levels (Chart 6). However, if we compare US stocks with world GDP, we find the ratio is below the 2000 (and 1960s) levels and suggests less of an extreme. Given that almost half of US company earnings come from abroad, it makes sense to compare US stocks with the world rather than just the US. Considering also that US interest rates and corporate tax rates are much lower, then the valuations look less extreme again.
(7) The traditional 60:40 equity:bond portfolio performed again! For all the talk of the return of active managers, the rise of private equity and alpha of quant funds, the tried and tested 60:40 equity:bond fund has delivered 3% returns in 2020. That’s not bad given the year’s uncertainties. This comes after double-digit returns in 2019.
(8) Sweden has the best-performing currency in 2020. Sweden has garnered much derision in 2020 for its less assertive COVID policy. Yet international investors appear to think there is something attractive about the country – at least judging by currency markets. The Swedish krona is the best-performing currency so far in 2020. It has outperformed the Swiss franc, Chinese yuan and the New Zealand dollar.
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