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Covid Positives Are Not Negative

BentinPartner Weekly

Dear Reader,

There was plenty of reasons to see the glass half full or half empty last week.

Dealing with the bad news first, the US economy was expected to shrink at a 1% annualized pace in Q1 next year as it faces renewed headwind from new restrictions on activity, JPMorgan said in its 2021 U.S. outlook issued Friday. That would follow estimated growth of 2.8% in Q4 … and the reported 33.1% expansion in the third quarter, which came after a record contraction in the previous period.

US infections of COVID-19 surged to more than 1 million a week, and deaths was on a steady rise with more than 252,000 people having lost their lives to the disease in the US alone.

In the meantime, Lawmakers remained nowhere near agreeing over the size of a much-needed fiscal relief package without which millions of Americans will lose their jobless benefits by year end.

To top things off, D. Trump still firmly clung to his toy, refusing to concede or to brief anyone on President elect Joe Biden’s transition team. Some B52 planes took off for the Middle East for so called protection missions. As long as they do not deal with attacking Iran nuclear sites in a hurry before leaving at the risk of triggering a global conflagration, the risks should remain contained but D. Trump soap (and sore loser’s) machine continued to run in overtime, fully intended to complicate matters for his successor.

The positive news on Covid-19 vaccines that pearled last week came on the other side of the ledger offering an antidote to most of the above, leading economists to expect a sharp rebound of the global economy, starting in Q2 and Q3 of next year and additional fiscal support to the tune of USD1trn.

There was plenty of stories last week about quant funds (automated trend followers for the most part) such as Renaissance being severely bruised in October, November by the abrupt reversals in this year’s most persistent market trends.

Whatever happens over the near term to financial markets and risky assets (that do not care about accumulating debt as long as they are bought by central banks at super low yields), the core of the problem will remain the huge amount of debt accumulated over the past year topping off the equally huge debt accumulated since the great financial crisis.

Bill White, the former Chief Economist of the BIS, who was one of the few officials to have warned about the looming financial crisis took central banks to task last week, stating the diagnostic, listing the ways the situation will have to be dealt with, one way or another, as he invited the current crisis to be used to rethink and build a more stable economic system.

The link to Bill’s most recent interview can be found here.

Last week's summary...

Over the past week, the S&P500 dropped -0,8% (10,4% YTD) while the Nasdaq100 dropped -0,2% (36,6% YTD). The US small cap index rallied 2,3% (7,1% YTD).

CBOE Volatility Index climbed 2,6% (72,0% YTD) to 23,7.

The Eurostoxx50 rose 1,0% (-5,1%), outperforming the S&P500 by 1,8%.

Diversified EM equities (VWO) rose 1,6% (7,7%), outperforming the S&P500 by 2,4%.

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,4% (-4,0%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,1% (1,6%).

10Y US Treasuries rallied -7bps (-109bps) to 0,82%. 10Y Bunds dropped -4bps (-40bps) to -0,58%. 10Y Italian BTPs dropped -3bps (-78bps) to 0,63%, matching bunds.

US High Yield (HY) Average Spread over Treasuries dropped -13bps (86bps) to 4,22%. US Investment Grade Average OAS dropped -5bps (15bps) to 1,16%.

In European credit markets, EUR 5Y Senior Financial Spread climbed 1bp (13bps) to 0,65%.

Gold dropped -0,9% (23,3%) while Silver sold off by -2,4% (35,4%). Major Gold Mines (GDX) shed -5,6% (22,6%), underperforming the entire metals complex. Bitcoins are intrinsically worthless. Still the generational divide and JPM analysts endorsing bitcoins a couple of weeks ago must be helping give it a kick. It may also be less politically incorrect to want to protect against inflation, currency debasement and many other risks with bitcoins rather than gold, silver (or by shorting the dollar across the board).

Goldman Sachs Commodity Index gained 1,3% (-25,6%). WTI Crude rallied 2,5% (-30,6%).


  • Stocks in Asia licked their wounds from last Friday’s abrupt US closing on further progress made toward a vaccine and signs of economic recovery from better than expected Korean trade data. The dollar weakened slightly.

This coming week…

  • Minutes of the most recent FOMC meeting are due Wednesday.

  • U.S. jobless claims, GDP and personal spending data will also be released.

  • US Thanksgiving holiday will come on Thursday, followed by Black Friday, the traditional start of the US holiday shopping season.

Have a nice week ahead and stay safe.


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Marc Bentin, BentinPartner GmbH

Founder, Chief Investment Officer

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