Fund Flows, Climate, And The Existential Bet

In this piece, we point out that the pandemic response has demonstrated the repudiation of the "debt" myth and suggest that investing in environmental technologies is an 'existential bet'.


Fund Flows

The wild ride in the stock market during 2020 has served to underline and support our working hypothesis - fund flows and fear drives the stock market. The market is not driven by news, even news of a once-in-one-hundred-years pandemic. News, whether financial or geopolitical, can temporarily “jiggle” the market, but it does not drive its primary trend. And, the market is not driven by the economy either, even if the economy shrinks by 33% almost overnight. As long as there is money flowing from the Treasury and from the central bank’s quantitative easing policies, the market will be driven higher.

Something else that the response to the 2020 economic sinkhole has accomplished is exposing the falsehood of the “debt” myth; massively increasing the deficit and national “debt” has not led to hyperinflation, higher interest rates, or currency collapse. But that hasn’t stopped the majority from continuing to worship at the altar of austerity. Both ends of the political spectrum continue to ignore the evidence and deny the need to provide money to the base of the economic pyramid simply because it will increase the deficit and the “debt” - as if the Treasury could run out of money.

On the Right, it is well established that, once the financial industry is funded, there is no more spending needed; they refused to even consider a second virus relief bill until the very last minute. Meanwhile, the Left ‘talk a better game’, but the reluctance to spend remains foundational, covered up only by a flimsy veneer of largess; the Left refused to accept a compromise bill several months ago that was twice what they agreed to before the holidays.

The Left’s ‘golden boy’ economist, Larry Summers (Clinton’s Treasury Secretary who produced the only budget surplus of the last 30 years), has publicly opined that even the $600 individual stimulus checks are too much because he is not sure “we should be encouraging consumer spending beyond what we are now” because “it is not that they don’t want to spend, but that they can’t spend; they can’t take a flight or go to a restaurant”. Did you get that? He thinks people are forming historic lineups at food banks because restaurants are closed! That gem was produced by one of Biden’s economic advisors. The Democrats are only slightly more amenable to deficit spending than the Republicans, and only in the short term. Longer term, they believe in the “debt” myth just as much as the Republicans do. Luckily, changes to spending and taxation take time to implement and will not take us by surprise. For now, the deficit will keep a floor under the market.

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