Trail 15 — Boosters
Jan 07 2022 (Editor — Sylvia Lo)
A booster is essentially an extra dose of something, with the emphasis on the word ‘extra’.
A rocket or spacecraft may have four main jet engines for most of its journey, but additional boosters are initially required to get enough torque for lift-off. So next time you see a lift-off, you know that it’s the booster doing all the grunt work, and the “main engines” are just going along for the ride. The real question is, how many boosters are required? Fairly complex modelling is necessary to calculate the right answer, but simplistically it is proportional to the mass of the payload.
While health professionals around the world are debating the number of COVID boosters we will need in the future…
…the markets are busy discussing the need and likelihood of these 3 boosters in 2022:
Omicron
Yes, it is a possible booster. Last week, South African scientists released a paper highlighting Omicron’s ability to strengthen our antibodies against the Delta strain. While highly transmissible, after two weeks of showing symptoms, immunity to subsequent infections rose 14-fold, according to Alex Sigal, from the Africa Health Research Institute.
Pre-existing health conditions aside, catching the virus at this stage might not be a bad thing. Some studies suggest that this variant is helping America (and some European countries) reach herd immunity faster. A silver lining amongst the vaccinated, new studies have confirmed the Omicron variant’s benefits: as case numbers continue to reach record highs, the number of hospitalisations have not. The data is signalling a new, more manageable phase of the pandemic, precisely the kind of ‘natural’ booster the economy and the body needs right now.
China
The pandemic stimulus triggered a buying frenzy in everything from stocks to crypto to property worldwide in 2021. China went the other way. Initiated by their strong stance against Bitcoin mining and the well-publicised collapse of Evergrande, they actively deflated known economic bubbles.
The underperformance has Wall Street drooling, looking with avarice at China’s cheap valuations, especially as Beijing shifts to easing. The race is on to invest big in Chinese stocks, as Goldman Sachs Group Inc., BlackRock Inc., UBS Group AG and HSBC Holdings Plc have all scrambled to buy up the nation’s equities. JPMorgan Chase & Co.’s have also recommended going all in, predicting the MSCI China will surge almost 40%.
As one of the few nations still pursuing Covid Zero, there is no doubt that containing the Omicron variant will be challenging. China has also spent most of the pandemic under strict restrictions. As they reopen their borders, the markets anticipate an economic boost within China and the rest of the world.
Money supply
The money supply was a huge booster in 2021 and was used extensively to bolster the economy during the pandemic. The charts below capture perfectly the money supply printed in the last two years.
For now, the hawkish Central bank position on the back of rising inflation seems to suggest that this booster will not be in play in 2022. Minutes from the US Fed’s final policy-setting meeting of 2021 did not give explicit guidance on exactly when a rate hike could happen, but did flag chance of earlier or faster interest rate hike.
Until next week.
Financial markets are fascinating, and I see them amalgamating the subjective and objective worlds. They are constantly evolving, follow no predetermined path and much like humans and society in general, their behaviour at most times is irrational. Yet, their day to day functioning is seemingly driven by facts and reasoning. They are filled with plenty of stories of triumph, tragedy and comedy. Every day they are thoroughly analysed and tried to make sense of. Yet, their future steps or directions cannot be predicted based on history. They follow a random walk. Therein lies their beauty.
If enjoying making sense of their randomness is as appealing to you as it is to me, each week, I briefly recap a few stories that captured my interest, with embedded source links available for those who wish to read more.
