Summary

Chris believes we are in the third phase of monetary policy within a 30-year (to date) debt super cycle. Chris explained that phase one occurred when interest rate cuts work and stimulate growth; phase two occurred when zero interest rates appear and you are deflating a large system (such as what happened during/post GFC) and finally phase three (which Chris sees as beginning this year) with rates at zero almost across the board and QE become much more for the people than for markets. Chris expects this to continue for around 5-10 years with the next decade being punctuated by on/off helicopter money. Chris also pointed out the similarities between the years leading up to the GFC and the 1920s and expects that there will be similar parallels between the 1930-40s and our present situation until around 2040. On growth vs value, Chris believes the growth cycle is overextended and expects its demise within the next 1-2 years. Chris drew parallels to data showing around every 25 years peaks in growth and value stocks flip. For 5 year investing purposes he recommends value stocks. However, for 12-month investors he advises staying with the momentum of growth stocks. He then explained how commodities are extremely cheap relative to equities even in the context of previous commodity super cycles such as that of 1999-2010. One of the key drives in such commodity super cycles was “very loose monetary policy at the heart of the global economy”. With regards to “Inflationary boom, or Deflationary bust?” (Chris sees stagflation as more of a medium-term risk), Chris outlined why he favours an inflationary boom; helicopter money, the co-ordination of loose fiscal and loose monetary policy and enormous fiscal stimulus with the US CARES Act representing 15% of GDP. Also, Chris pointed to the fact that in almost all areas the government is backstopping the economy. Chris also explained how the release of a vaccine could be the key to triggering this inflationary boom. The main risks to this view are, credit conditions tightening, such as those currently occurring in banks threatening small and medium sized businesses; rising inflation causing the Fed to tighten liquidity and what happens when governments stop fiscal stimulus. Chris then outlined his primary risks that would shift Longview’s expectations of an inflationary boom to deflationary bust as being, withdrawal of monetary policy too early, a second virus wave (although he sees this to be likely propped up by further stimulus) and finally the bursting of the stock market bubble. On the tactical side, Longview are overweight risk as Chris sees that on a 1-4 month basis the US government is likely to continue stimulus packages no matter who wins the presidential election. On the other hand, Longview’s global asset allocation portfolio is mostly neutral, with a small recent tilt to risk which is likely to grow over the coming weeks. Chris laid out his view of the coming recession being supply-side led rather than a demand-side shock such as in 2008. Despite job losses, Chris points to the fact that household income has risen each month on a YoY basis. Thus, Chris concluded that the policies of helicopter money and stimulus have done their job to bridge the gap until job creation picks up. Cyclically, Chris is also optimistic for the future growth of the US moving into next year. He is also optimistic for the outlook structurally, with both the corporate and household sectors in “good shape”.

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