Conquistadors

Markets were somewhat muddled to start the new week as investors ponder more evidence of dysfunction in D.C., where brinksmanship between America’s warring political duopoly risks pushing the country over a fiscal cliff, imperiling millions of jobless and thousands of small businesses in the process.

The White House is said to mull unilateral action in the event Congress remains gridlocked, but the scope and character of any presidential intervention was initially unclear.

Global equities feel tired, although stocks were buoyant in Japan and mainland China. The Caixin manufacturing PMI printed 52.8 for July, the highest since January 2011, adding to evidence that the world’s second-largest economy is stabilizing, even as questions remain about external demand and domestic consumption.

“Manufacturing demand and supply continued to recover, but overseas demand remained subdued”, Wang Zhe, Senior Economist at Caixin Insight Group, said Monday, cautioning that “employment remained weak”. “Overall, flare-ups of the epidemic in some regions did not hurt the improving trend of the manufacturing economy [but] we still need to pay attention to the weakness in both employment and overseas demand”, he added.

Gold initially rose, extending a record run, but spot eventually pulled back. The analyst commentary is couched in increasingly hyperbolic terms. “Gold seems like a freight train as investors have gone (perceived) safe-haven hunting”, RBC’s Christopher Louney remarked, in a Monday note suggesting prices could top $3,000.

“All the impetus seems to be coming from investors in ETFs, who built their biggest-ever stockpile”, Bloomberg’s Eddie van der Walt wrote. “The question is, can that remain the case forever? Probably not, but when they’ll stop is anybody’s guess”.

Dentists, folks. The dentists are buying.

“Gold positioning indicates that investors’ attitudes toward the metal have changed amid the public health crisis, economic turbulence, and extremely easy monetary policy actions”, RBC’s Louney went on to say, calling the yellow metal “more popular than ever”.

I suppose that depends on one’s look-back window. It was pretty popular among Spanish conquistadors.

Speaking of conquistadors, equities are fast closing the gap on bonds as global stocks look to do what the Nasdaq did some weeks ago — namely summit fresh peaks, conquering the pandemic once, if not for all.

August seasonals (bullish for bonds and equity volatility) loom.

And yet, like too many inhabitants of the new world who perished in the years and decades after the arrival of cruel European settlers, equities may eventually succumb to an unknown virus.

The COVID-19 infection rate has quickened to one million cases every four days. Here’s Rabobank’s Michael Every:

It was just a few short weeks ago that governments in Australia and the UK were congratulating themselves on how they had performed under COVID-19, and both were enthusiastically looking ahead to getting life back to normal. Today Victoria, Australia is under new lockdown and Melbourne faces six weeks of virus curfews, while in the UK a state of emergency has been declared in Manchester, a trial balloons have been floated to cut-off London from the rest of the country if needs be –which we were recently told would never happen– and for the over 50s to have to stay at home to allow everyone younger to get back to normal – which were again told would never happen.

All the more reason to buy gold, I suppose.

After all, you can always use it as a projectile or a blunt object in a Hobbesian state of nature.