Sitting on a beach earning 20%

With Christmas upon us, I was pondering how the world has changed and what better place to start than the first Die Hard movie, a Christmas favourite now, and Alan Rickman’s attempted thief of US bearer bonds. As the lead bad guy in the film, Mr Rickman gleefully extols that by the time the authorities know he and his gang have stolen the bearer bonds, “we’ll be on a beach, earning 20%.”

That was 1988; in 2021 it just wouldn’t ring as true. “By the time they find out, we’ll be on a beach, earning errrrr 1.50%. Or if had stolen bunds, it would be “by the time they find out, we’ll be on a beach earning err…-0.50%. Hang on, it’s not worth getting shot by John McClane for -0.50%, grab some of the Greek 10-years as well. What? 0.70%!? Crime doesn’t pay anymore. Ok chaps, Plan B. Call that crypto broker back in Belize, lets circle back to those password locked JPG’s they call NFT’s, find me that investment banker’s number who was flogging SPACs, buy me some technology stocks and let’s reactivate that Reddit account, there’s plenty of suckers in there we can rob without getting shot.”

Mr Rickman’s quandary nicely encapsulates 2020 and 2021 when one thinks about it. Die Hard in its original form could never be made in 2021. Nevertheless, the bottomless amounts of zero per cent money from the world’s central banks continue to pump up asset prices everywhere, economic equality-be-damned. That situation is about to change though, with the Federal Reserve beginning the monetary normalisation path in 2022.

US markets steady after solid US data

Markets continue to dismiss omicron because that’s what they want to believe, and the US data dump overnight had strong showings from the PCE Index, Durable Goods and Michigan Consumer Sentiment. Assuming omicron is a storm in a test tube, and I certainly hope it is, there was nothing to deter the Fed overnight. The omicron-is-mild rally could well continue into January now, but reality will bite in February I believe, as the end of the Fed taper moves into sight.

Don’t discount omicron though, much of the developing world, including the author, were vaccinated with Sinovac which doesn’t appear to work against the new variant. We can also take off our western-centric blinkers and note that China is in the same situation, it will remain shut for all of 2022 now. And while rich countries continue with their vaccine and pill lolly scramble, the majority of the world will still provide fertile ground for more variants to emerge.

Still, assuming we move through omicron and Vladimir Putin decides to spend his winter holidays in Russia and not “overseas,” policy normalisation by the Fed will the theme of 2022. Perversely, China may assist this process as their Covid-zero policy keeps the border shut and the Renminbi strong as their giant trade surplus gets recycled into local currency. China will become an exporter of inflation instead of deflation going forward, another uncomfortable reality for consumers globally, but another reason for the Fed, and perhaps others, to hitch their wagons to fighting inflation and teaching the world once again, that the natural cost of capital is not zero per cent.

2022 may yet make crime pay for Alan Rickman as his bearer bond yields improve. In the meantime, yippee ki-yay everybody, stay safe, eat a lot, and happy holidays from me in Jakarta. I shall return next week, fear not. But, for now, my attention turns to making pavlova (invented by Kiwis, not Aussies,) and the bringing of my 5kg organic, free-range turkey from Bali.

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