The evolution of mortality through the demographic transition is as close as we come to a deterministic process in the analysis of population dynamics. Science and technology have become increasingly better at keeping people alive, a benefit that still seems to drive the human experience to this day. It’s possible to identify milestones through history such as the development of modern sanitation to defeat contagious air- and waterborne illnesses, the development of vaccines for specific illnesses, as well as overall technological development in the field of healthcare. It is a story about pinning down the causality between rising national income and technological development and the improvement in the human living condition in the past 250 years. Researchers still debate the relative importance and merits of specific drivers, but it’s possible to generalize, all the same. The story about of human mortality is contained in a few relationships, for the individual, between, and possibly within countries. It is a story about Nike swoosh-shaped, logarithmic and asymptotic curves, and the extent to which we observe deviations from such stylized relationships over time, and why.
Read MoreIt's difficult to think of a more politically incorrect idea than recommending investors to allocate money to China's government bond market, ostensibly by selling a portion of their U.S. treasuries. Granted, this would actually be consistent with the rebalancing of the bilateral U.S.-Sino trade relationship that the most ardent critiques of China's economic model desperately want. Or perhaps what they really want is a strong dollar plus capital controls? It is difficult to tell sometimes. That said, it is fair to say that lending money to China's government to fund domestic investment, some of which invariably will go to defence, probably doesn't get you on the White House's Christmas list. Incidentally, and before I flesh out the trade, I should make one thing clear. I think the mismatch between the increasingly tense geopolitical relationship between China and the U.S., and the fact that capital and goods still flow more or less freely—with the exception of direct outflows from China's mainland—between them represent an enormous tail risk for markets.
Read MoreFirst things first, the bull market and, predominantly retail driven, frenzy in cryptocurrencies, SPACs, NFTs, and BANG stocks—BlackBerry, AMC, Nokia, and GameStop—are to me all derivatives of the fact that the policy mandarins of the world are showering the real economy and financial markets with unprecedented levels of liquidity. To be clear, I do not mean to disparage traders who are able to extract value from these markets; all power to them. What I am saying is that if global monetary policymakers were not doing QE by the trillions, on an annualised basis, the bull market in many of these things would evaporate like mist on a hot summer morning. Meanwhile, in old-school assets—themselves beneficiaries of QE—the overarching theme at the moment seems that the vol-sellers are back in charge. The VIX has hurtled lower, to just over 15, and at this rate it will soon be in the low teens. The same is the case for the MOVE index for fixed income volatility, which is also now clearly driving lower, hitting a 13-month low of 53.4 in May.
Read MoreIt’s been a while since I looked at markets, as I am busily trying to finish the second chapter of my new demographics project—see here—but peering across my portfolio, I haven’t missed much. Granted, the straight-line rise in green and clean energy stocks—a theme that I am invested in—has petered out, but otherwise, most of what I own keep going up, and the number at the bottom of the column keeps getting bigger. Investing in a pandemic-stricken world, it seems, isn’t too bad. When I haven’t looked at markets for a while, I tend to go back to the basics. The first chart below plots the six-month stock-to-bond return ratio in the US, which has been locked at +20% since the beginning of the fourth quarter. This is punchy, even unprecedented, but I am loath to second guess this trend at the moment. Sustained positive stock-to-bond returns tend to be associated with resilient bull markets, and let’s be honest; that’s what we have, for now. I worry, as I suspect does everyone else, that investors have bought too aggressively into the rumor of a post-virus recovery, implying that they will sell the fact. If that’s true, conditions will become more difficult over the summer, and in the second half of the year, though I am inclined to believe that any swoon will a familiar case of BTFD™.
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