Nine Charts to Scare You Ahead of Halloween
By Bilal Hafeez
(6 min read)
By Bilal Hafeez
(6 min read)
Halloween is here, so I have put together nine scary charts. And I promise, no charts on COVID…
US stocks reached a low in March 2020. Since then, the S&P500 has risen by over 100% – that is, it has doubled. But across the top 25 companies, some have risen more than others. Walmart has only risen 30% since the March lows, Proctor and Gamble 46% and Johnson and Johnson 49%. At the other end, PayPal has risen 185%, and Nvidia 365%. But Tesla is the clear stand-out. It has risen a whopping 1,073% (Chart 1). We know the pandemic has seen strong tech performance, massive demand for cars and a greater focus on the climate, but is such a large rally sustainable? (Or can Elon Musk keep Tesla in orbit?)
Central banks have been on a relentless buying spree since the global financial crisis (GFC). The COVID pandemic only added to that. Through purchasing bonds, the US Federal Reserve’s balance sheet has swollen to $8.5tn. It was a paltry $0.9tn in 2008 before the GFC. As a share of GDP, the Fed’s balance sheet has now reached almost 40%. China, meanwhile, has seen its central bank, the PBoC, shrink its balance sheet as a share of GDP. It has steadily fallen from 60% a decade ago to under 40% this year. So adjusted for the size of its economy, the Fed now has a larger central bank balance sheet than China (Chart 2). Who would have thought the bastion of capitalism would take this crown from communist China?
This was to be a banner year for gold bulls. Central banks were printing money, and inflation was surging. Headline US inflation went from 1.4% at the start of 2021 to settle at 5.4% since June. And what did many investors think would be the best inflation hedge? Gold. Yet gold started the year around $1,900 and has been steadily drifting lower ever since (Chart 3). It is currently down 6% so far this year. Turns out, higher interest rates likely hurt gold prices more than inflation helps it.
Ignoring crypto markets is hard. Not a day goes by without some story of a newly minted crypto millionaire. It is unsurprising given how large the swings in these markets can be. The largest market, bitcoin, has seen its price double this year alone. But that is pocket change compared with the new kids on the block. Ethereum has risen by almost 500%, but its challengers have flown past it: Cardano has risen 1,120% and Solana a huge 10,750%! Even dogecoin, the cryptocurrency created as a joke, has risen 4,400%. But beware, bitcoin surged similarly in its early days before seeing large corrections, so perhaps 2022 may be less kind to some of these markets.
The news is filled with stories of energy shortages, supply chain problems and rising prices. But there are exceptions. The starkest is pork prices in China, tumbling almost 50% over the past year (Chart 5). In an eery parallel to today’s COVID pandemic and shortages in the manufacturing sector, China faced a pig shortage in 2019 thanks to the swine flu. But eventually, China curbed the flu, which brought a glut of pigs and tumbling prices. Is this a sign of what is to come in computer chips and energy?
Central bankers have been gleefully rubbing their hands as unemployment rates tumble. In the US, the official unemployment rate is 4.8% – the same as in late 2015, well into the post-GFC expansion. But the unemployment rate’s shortcoming is focusing only on those who say they are in the labour force and looking for jobs. An alternative measure is the working age employment population (epop) ratio, which covers all people not just those claiming to be in the labour force.
The prime working age epop ratio looks especially bad for men. Of the total population of men aged 25-54, only 80% are employed. Before the GFC, the ratio reached as high as 87%. And even with the boom under former US President Donald Trump, it only reached 83%. Meanwhile, the epop ratio for women returned to its pre-GFC levels during the Trump boom, though currently it is below. This means a large segment of the prime working age population of men has yet to find a job. For all the talk of a buoyant jobs market, then, the data shows otherwise.
During any economic shock, you expect corporate bankruptcies to pick up. Remember all the headlines last year around the largest economic growth declines in history because of the COVID pandemic. But looking at bankruptcy data, you would be hard pressed to notice any recession. US bankruptcies picked up very moderately in 2020, but this year are close to the lowest levels since the GFC. Meanwhile, Germany showed a fall in bankruptcies in COVID-hit 2020 and this year (Chart 7). This tells us low interest rates, government support programmes and a rapid re-opening of economies make the COVID recession unique. The real test for the corporate sector will be when support programmes roll off and interest rates start to rise.
It started so well. President Joe Biden was supposed to bring a return to ‘rational’ government and bipartisan policymaking. A large stimulus package to kick off his presidency and more to come would surely see Biden’s popularity surge. Instead, we saw a steady and then rapid decline from the net approval of +20ppt at the start of his term. The latest polling shows 51% of the public disapprove of Biden against 43% approval, bringing a net approval of around -7ppt.
At this stage of the presidency, only Trump fared worst (he polled at -19ppt). Therefore, Biden is polling worse than every other president, including the hugely unpopular Gerald Ford in 1974 (Chart 8). In comparison, Obama polled at +11ppt at this stage, while Clinton polled at +2ppt. Prediction markets are already expecting the Republicans to gain control of Congress in 2022, which means fiscal gridlock. And the odds of the Democrats winning the 2024 presidency have also been slipping. Meanwhile, Trump remains the favourite candidate to run for the Republicans in 2024.
Cinemas are back open, but will the Marvel movie juggernaut continue? Aside from the pandemic, it was always going to be a testing time for the franchise as the popular Phase 3 of Marvel ended with the record-breaking Avengers: Endgame. The question is, will cinemagoers flock to the next wave of Marvel heroes? The answer, so far, is no.
This year’s Black Widow only made $380mn worldwide in the box office, while Shang-Chi made $421mn. These are good numbers for normal movies, but not Marvel movies. The annual gross of $800mn pales before the 2019 gross of $5,000 million. Admittedly, that was the year of Avengers: Endgame, but even 2017 and 2016 – which had single-hero Marvel movies – grossed annual totals of $2,600 million and $1,830 million (Chart 9).
Making matters worse is that other franchise movies like Fast and Furious 9 ($720mn), No Time to Die ($527mn) and Godzilla vs Kong ($468mn) grossed more than either Marvel movie. Meanwhile, a non-franchise movie, Free Guy, which likely cost half the Marvel movies, grossed $330mn – close to Black Widow’s gross. Disney executives will be hoping the next Spiderman movie, No Way Home, due out at the end of this year or early next year, will reinvigorate the Marvel franchise.
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