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Are we back to the races again?

‘I think at some point this pent-up demand is going to come and markets are going to push higher’ – Nick Kunze – Sanlam Private Wealth.

SIMON BROWN: I’m chatting now with Nick Kunze, portfolio manager at Sanlam Private Wealth. Nick, good morning. I appreciate your time. I mentioned there in my intro –  about an hour ago the news came that the Ever Given, which was stuck in the Suez Canal, is no longer stuck. It isn’t yet moving, but it’s no longer embedded into the site. My sense last week was there was lots of watching and talking and concerns about global supply routes, but it didn’t necessarily have a massive negative impact on the market. 

Listen: Giant ‘Ever Given’ ship blocks global trade

NICK KUNZE: Good morning, Simon. That has been one of those eventful weeks, hasn’t it – all of us concentrating on a giant container ship in the canal to voice our opinions. You saw oil being sort of front and centre of what happened: it was up sort of 7%, or 8% on Wednesday. Then on Thursday down about 4%, up again on Friday. And I see a little bit softer again this morning. So I think overall it’s one of those sort of one-off events. We know things are going to get back to normal. 

And I think the market, as we’ve seen with the pandemic, is discounting far out into the future. And that’s exactly what’s happened now. But a big day on Friday – phew.

SIMON BROWN: My next point was [that it was] a massive day on Friday. I think globally, markets were green, or our market was. There was a report out from Goldman saying [commodities companies in Russia’s MOEX and SA’s JSE Top 40 indexes are among the most likely to benefit as commodity prices bounce back] … and resources did fly. We’ve had a sell-off in the last couple of weeks, months or so; this happens in bull markets. Are we back to the races again?

Read: Goldman analysts say go long on Russia, South Africa stocks

NICK KUNZE: It’s a difficult question, but I’d have to err on the side of yes, possibly. Possibly. It feels like the point of least resistance is to the upside, certainly with global equities. I wouldn’t be surprised. Standard & Poor’s is a bit softer this morning, but I think it has to touch that 4 000 level before we can sort of make a real call. 

We’re coming up to quarter-end, Simon, and what a quarter.

We’ve had like a new US president, a new candidate for Germany, and we’ve had a $1.9 trillion coronavirus package. Throw that in with a couple of Suez Canal stories and the JSE All Share up almost 12.5%.

If you told me this at the start of the year I wouldn’t have believed you. So, if anything, it’s not boring at the moment

SIMON BROWN: I would have said lock up and let’s go home and come back in December and take 12.5%. But I’m old enough, and you’re old enough to remember 2006. I think we clocked 40% that year, driven on a resource rally. Kind of the same.

NICK KUNZE: Yes, don’t underestimate the amount of liquidity.

You’ve heard it so many times – central banks are doing this and central banks are doing that, but really, on top of them pumping so much liquidity into the system, you’ve just got to look at the savings rates.

Some of the real drivers are in Europe, like Germany, for example. The German population is sitting on more savings under their beds than they’ve ever done in history. And yet at some point that comes into the market. 

The stimulus package out of America, still the world’s biggest economy, looks like they’re going to continue to drive the economy going forward. They are also sitting on massive [subsidies]. They’ve been paid to sit at home, and at some point, they’re going to come back into the market and they’re going to want to go back to restaurants. They want to get back to normal. 

And the pictures this morning, Simon, if you’ve seen some of the UK websites, [they] show they’re getting back to normal, with outdoor gatherings going back to normal. I think at some point this pent-up demand is going to come and markets are going to push higher.

But after the middle of this year onwards, I don’t know. Bets are off for there. But for the near term, definitely to the upside.

SIMON BROWN: I take your point there. And I think resources are doing that globally and perhaps we can go along for the ride.

Nick Kunze, portfolio manager at Sanlam Private Wealth, I appreciate your early morning, sir. 

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I don’t claim to be an economist… But I’m not getting it.

“Stimulus” is just the government borrowing from their future taxes essentially – and taxes only come from 1 place and that is private individuals that produce value and than hand over a % to their government.

So in the short run it’ll pump up savings and subsidies and the markets. But then what?

Someone educate me as I’m genuinely asking what happens next?

There are other sources of tax other than individuals – such as company tax, VAT, MST, estate duty taxes, and a number of other taxes, the list is extensive – just lift up a rock and you will find a tax thereunder

governments have many sources of income aside from tax (but higher tax in tie to pay for the stimulus is not the worst idea). They could borrow or print money, and before the howls of inflation and printing, check out my interview on Modern Monetary Theory. The theory that a healthy state printing money will see hyper inflation is simple not true

True, but is the USA in an overall healthy state right now and at the rate at which the Fed is spewing out dollars – is that not a bit worrisome?

End of comments.

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