Ed Harrison: The Global Economy in 2021

Published on
January 1st, 2021
Duration
30 minutes


Ed Harrison: The Global Economy in 2021

Presentations ·
Featuring Ed Harrison

Published on: January 1st, 2021 • Duration: 30 minutes

Real Vision managing editor Ed Harrison shares the market themes that are on his radar for 2021 such as central bank liquidity, bank lending, government largesse, and the relationship between the economy and asset markets. Harrison also shares his thoughts on market sentiment and currencies, most notably the U.S. dollar. Lastly, Harrison previews upcoming interviews with Mike Green, Lyn Alden, and Darius Dale, who will be sharing their 2021 outlook in-depth next week on January 4th, January 5th, and January 6th. Filmed on December 21, 2020.

Comments

Transcript

  • DR
    Derrick R.
    9 January 2021 @ 18:01
    Always love to see more content from Ed!
  • DW
    Denton W.
    8 January 2021 @ 20:39
    Great video. Are you guys going to go back to in-person videos when the pandemic is over?
  • CD
    C D.
    6 January 2021 @ 07:31
    Great coverage Ed ✊️ Best for 2021!
  • JB
    Jack B.
    5 January 2021 @ 02:31
    The plant looks very well considering cold temperatures. Did you have a heat lamp for the plant and space heater for you? Appreciate the macro thoughts, btw.
  • JL
    J L.
    3 January 2021 @ 16:10
    Harrison said: "In 2021 I think the big theme will be a meeting of the real economy and of asset markets." I would aggressively challenge the implied assumption here. The working mental model for Harrison and others (correct me if wrong) seems to be that: 1) Asset prices are disconnected from the real economy 2) The K-shaped recovery implies the real economy is worse than markets acknowledge 3) The reality of the K-shaped recovery means the real economy should pull markets down My alternative view is that: 1) Markets are brutally Darwinist. They don't care about the bottom of the K. 2) The top of the K drives spending, and profits, to a major and significant degree. 3) Government attempts to help the bottom of the K will juice the top of the K. There seem to be two popular camps as what is happening in the US economy. One popular camp says: "Everything is fine, we will have a nice recovery, it's all good." The other camp says: "The economy has deep scars, it is brutal and ugly, and the stock market should start reflect that." I am proposing a third camp: "The economy indeed has deep scars — and the bottom half looks brutally ugly — but the market only truly cares about the top half, which is where spending and lending attempts are concentrated, and attempts to help and stimulute the bottom will further juice the top." Also think about all those SPAC deals that have time limits on the acquisitions they have to make. These are effectvely hundreds of private equity M&A obligations that have to be exercised within a time limit. And then think about the expansion opportunities of large corporations who are going to expand their footprint into the small business void. Banks will want to lend to those corporations as chains expand. Then, too, Robinhooders and retail investors are getting another $600 boost. The last time they got a stimulus check, many of them YOLO'd the money into meme stocks. And on top of the above, you have all the easy earnings beats that people are talking about, and in the energy sector you will have oil and gas stocks benefiting from a rising crude oil price as the dollar continues to fall, and in Europe the strong euro and a sense of resolution with Brexit — coupled with Paris and Frankfurt "taking back control" of financial flows form the city of London — will combine to make it easy for Europe to issue more debt and monetize optimism. And meanwhile Bitcoin looks like it is on its way to $50K or even $100K. Then, too, going back to the coronavirus and "companies that could go under" as Harrison points out: Again there are two ways to look at that. It is bearish to see small to medium-sized businesses go under — but that also means big opportunity for companies with strong balance sheets. And it is bearish for commercial real estate to face a long-term work from home (WFH) shift — but the flipside of that is the potential for a trillion-dollar upgrade to the home as the new workplace (the top third of the economy pouring tons of money into expanding their home space, renovating their offices, buying new gadgets, on and on). Then, too, regarding the velocity of bank reserves: The stage is set for bank reserves and velocity to EXPLODE in 2021. Why? Because banks prefer lending to strong companies with strong balance sheets — and those are exactly the type of companies that will be licking their chops in terms of expanding into a world of destroyed small businesses. This is Darwin again. The pain and misery of the lower half of the economy, and the wipe-out of millions of small businesses, is ultimately a prescription for expanding lending velocity because the banks will lend readily to larger companies with strong balance sheets who are financing an expansion into the deserted ground that small players left behind. Much of this is to say that, for anyone anticipating a big bearish turn in 2021: If you are basing those hopes on the bottom half of the K-shaped recovery or Covid-related pain, you may want to seriously rethink your premise. Things could certainly go bad, but for now it appears the trends fueling the bull run are quite strong. At minimum I would wait for a significant breakdown in the major indexes, and the seeding of visible weekly downtrends in said indices, before getting serious about entertaining bearish scenarios (and the same in reverse for the dollar). Also: All of this analysis is great, but price is the best. Pay more attention to charts than anything else, and draft all the fundamental stuff behind that. You'll be way better off using theories to validate price movements you see than you will trying to game out where markets will go, in advance, using only the power of your mind (which nobody can do well, which is why even the quants focus on extremely short-term movements).
    • DM
      Don M.
      3 January 2021 @ 18:16
      JL I don’t agree with everything you wrote but excellent piece. Well thought out and worth the read. Good food for thought.
    • AB
      Alastair B.
      3 January 2021 @ 18:20
      Check out how the Zaibatsu companies weathered the post-ww1 slump and the Great Depression in Japan. It seems similar to your thesis. Great post, thanks!
    • JF
      John F.
      4 January 2021 @ 10:25
      Brilliantly said. Can we get you a regular slot on the Daily Briefing? I appreciate Ed's thoughts on the real economy and markets. Theoretically, his argument makes sense but it likely would have kept you out of this equity market bull run. As you say, price action is the only thing that matters in the current environment. The inability of RV's editors to change their view has been disappointing. Eventually Ed may turn out to be right about the convergence of the economy and markets but that could be some way off.
    • JL
      J L.
      4 January 2021 @ 17:15
      @ John F. Thanks, you are too kind! I would say that fundamentals and narratives definitely matter — it is hard to size positions without them, or to know where to focus in a sea of possibilities if going on price alone — but price action is essential as a kind of sorting and filtering mechanism. Most of the time, there are bullish and bearish theories available for most any market or asset. Bruce Kovner described it like a marble at the top of a hill: The marble can roll one way or the other. The thing that is needed is a tipping point, a way to gauge which way the marble has rolled. Price is thus a kind of real-time Bayesian reporting mechanism for which market theory, bullish or bearish, is prevailing at a given time. For example, I have access to multiple bearish narratives for markets in 2021, all of them quite plausible and backed by fundamental evidence. But price, as a Bayesian discounting mechanism, is saying "keep the bear theories in the drawer for now and focus on the bullish ones." And the same holds in reverse for the dollar. There are plausible theories for the dollar going up, and plausible ones for the dollar going down (and down some more). Guess which one price is voting for now? I think the RV analysis is generally good, but definitely agree it could be improved if they made a more conscious habit of 1) developing multiple narratives and theories, bull and bear, and then 2) applied price action as a Bayesian filter. Something like: "Know the bull side… and know the bear side… and then let price decide."
  • PB
    Patrick B.
    2 January 2021 @ 12:42
    No BPL predictions?
    • EH
      Edward H. | Real Vision
      4 January 2021 @ 09:30
      Chelsea won’t win the league. After seeing the last several games, that’s my prediction. Liverpool look good though
  • SM
    Sean M.
    3 January 2021 @ 05:27
    Is your heat fixed?
    • EH
      Edward H. | Real Vision
      4 January 2021 @ 09:28
      Yes! We ended up going to a hotel for two days though. But not it’s better than before it broke. Thanks for asking
  • FC
    Fernando C.
    1 January 2021 @ 19:01
    HNW Ed! the century bond mentioned in the video was issued by Peru (not Ecuador) in late Nov with a spread of 170 bps.
    • EH
      Edward H. | Real Vision
      4 January 2021 @ 09:26
      I realized I said Ecuador right after the filming but left it as is.
  • RM
    Russell M.
    3 January 2021 @ 23:05
    Expanding the fiat money supply is not creating IOU of the government, even if you’re talking about issuance to buy Treasuries because they can continue to print money to pay interest and principal on Treasuries, it is redistribution of wealth from those who don’t receive the fiat money, and therefore can’t buy things with it, to those who do get it and can buy things they would otherwise not be able to buy. Fiat money printing and distribution is pure welfare, individual and. Corporate. It distorts markets. From the government’s perspective, it is a redistribution of existing wealth to individuals and the companies that employ them (regardless of whether the companies are efficient and meet a demand better than competitors) is done to stabilize society and prevent anarchy. This is at the expense of market efficiency and growth. The more money created, the less efficient the economy and the slower growth.
  • MK
    Michael K.
    1 January 2021 @ 19:17
    I was skeptical of RV editorial staff, but I value listening to Ed’s perspective as an individual himself. Happy new year.
    • JF
      Jonathan F.
      2 January 2021 @ 21:25
      Ed’s a baller! I always appreciate his insight.
  • SS
    Steven S.
    2 January 2021 @ 18:18
    Excellent work, Ed. Always informative. Many thanks.
  • SC
    Sejong C.
    2 January 2021 @ 03:52
    Which leads, asset markets or the economy? Or is this more of an egg and the chicken thing?
  • RC
    Rafael C.
    2 January 2021 @ 02:21
    Happy New Year, Ed! Thanks for the video.
  • JH
    Joseph H.
    1 January 2021 @ 22:33
    Thanks Ed. Happy new year!
  • WT
    William T.
    1 January 2021 @ 20:45
    Ed, will there be any discussion of a Minsky moment approaching?
  • GM
    Gary M.
    1 January 2021 @ 17:29
    Happy new year to you too, Ed. An interesting year awaits!