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Tag: usa

  • ESG Goes MEGA: Making Europe Good Again….

    ESG Goes MEGA: Making Europe Good Again….

    The current perceived wisdom of markets is that doing good helps financial performance. Doing good even has its own fancy financial acronym these days – ESG. That covers corporate adherence to Environment, Social and Governance standards. In fact, more than $30 trillion of investment funds are now using ESG metrics/data in their decision making. It would seem the performance debate over ESG is now over which raises an awkward query for this writer. If ESG is a such a big driver of performance why does Europe’s equity markets lag the US so badly?

    The data rarely lies. The following chart provides a stark reminder of a European Stoxx50 index going precisely nowhere over the past 5 years while US indices, like the S&P 500 and Nasdaq, roar ahead.

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    Of course, there are other macro drivers of equity markets. One of the most topical themes these days is the massive underperformance of the value style of investing. Europe is clearly more exposed to more traditional companies and business models and definitely lacks the turbo boost coming from the US technology titans. A $6 trillion boost no less. Yes, the 5 largest tech companies in the US have a market value equivalent to China’s GDP from just a decade ago. And yet, markets are supposed to discount the future. Technology is certainly the future but what about the future US?

    Recent headlines from the US do not look out of place in a banana republic with ESG alarm bells ringing very loudly. Check out this medley of mayhem:

    Trump demanded 10,000 active-duty troops deploy to streets – CBS News

    Justice Department Reversal “Gross Abuse of Power” – New York Times

    Revolt of The Generals – Washington Post

    Trump Threatens to Invade Seattle – Vice.com

    After Facebook staff walkout, Zuckerberg defends no action on Trump – Reuters

    The media fixation on the unstable non-genius in the White House almost misses the point. The bigger ESG issue is the passive acceptance by half the legislators in the country(Republican party) of the potential corruption of the DOJ, the military and a massive social media company with a user base twice the size of China’s population. Trump is merely a symptom of decades-long social dysfunction. Yes, George Floyd’s death has forced the national address of systemic racism and a wave of corporate PR statements recognizing the issue and a firm commitment to do good, better. ESG box ticked, move along? Ehhh, not so fast. Where is the corporate concern on the following….

    • The US has a prison population of well over 2 million. That is 25% of the global prison population for a country with less than 5% of the planet’s population.

    • More than 300 million guns owned in the US.

    • Thousands of immigrant children held in cages.

    • Toddlers causing death/serious injury with guns annually exceed all Jihadi/Islamic terrorist activity.

    • The top 1% of the population in 2018 held over $25 trillion in wealth which exceeded the wealth of the bottom 80%. With 40 million now out of jobs and the Nasdaq hitting all time highs one shudders to think where the current disparity lies.

    • 1,000 people are killed by US police annually.

    One suspects the most wide-scale street protests seen since 1968 are about far more than George Floyd’s gruesome murder. Europe is not a perfect place but the Covid-19 pandemic has surprisingly revealed a crisis response far more coherent than originally feared. It is early days yet in a hopeful recovery but one wonders if financial markets over time will see Europe through a more atttractive ESG prism. How ironic it would be if European capital markets over the next decade outperform the US due to the comeback of social values rather than financial value…..

  • Torn in the USA

    Torn in the USA

    The USA is very important to Ireland. It is our single most important trading partner, accounting for 31% of our total exports. However, the commercial relationship is far more embedded than just traded goods. The CSO tell us we import almost €50 billion worth of services from our American friends on an annual basis. Well, we did. In the middle of a global pandemic it is understandable to wonder about the future. Or maybe not.

    As a technology focused economy one can only be encouraged by the massive rebound of the tech-heavy NASDAQ 100 index in US equities markets over the past month. The Nasdaq is now within 7% of all time highs. Check out the following chart from Tradingview.com:

    It is quite incredible to witness such market enthusiasm when one considers the latest PMI economic activity indices from the likes of France and India plummeting to single digits from expansionary norms above fifty. Perhaps, as Warren Buffett reiterated this week, it is wise not to bet against America. And yet, there’s something not quite right. Despite President Trump’s best efforts, it is extremely difficult to ignore the inexorable march of C19 across the US. Here’s a chart of C19 case growth in the US over the exact same one month period as that covered in the Nasdaq chart:

    There are a few other things that are not quite right in the US right now. Take your pick from the following:

    • 30 million US jobs lost in the last 6 weeks

    • The US Treasury expecting to borrow $4.5 trillion to support a C19-crippled economy

    • The State of Illinois, already burdened with a huge debt mountain, forced to cancel a bond sale

    • Armed demonstrators bedecked in Confederate and Nazi paraphernalia storming Michigan’s state capitol

    Of course, there are other countries where tensions are rising as the economic costs of pandemic lock-downs bite. However, not every country accounts for 50% of the world’s capital markets. And, not every country is cursed with a leader so unsuited to lead. President Trump believes he needs an economy back at work to win another term in the White House. The election is all that matters to Trump and he is not shy about letting the world know where he sits on the wealth vs health debate. Unfortunately, without a vaccine, one can’t bend nature to your electoral will, or call the Kremlin.

    A polarised political climate, a dysfunctional media, woeful education standards and severe social inequality are all revealing themselves in this tug-of-war between public health protection and wealth preservation. There is a real risk that a failure to control the Covid-19 virus in the US could have explosive social repercussions. The truth is that the virus is the only new element in the social decline of the US. Arguably, the USA is searching for its true heart. Somewhere along the way ‘patriot’ , ‘true American’, ‘war’, ‘religion’, ‘heartland’, ‘great’, ‘united’ and ‘homeland’ all lost their true meaning in a cultural battle waged by chyrons, charlatans and cheerleaders.

    Thirty six years ago next month Bruce Springsteen released a rock album flagging the betrayal of America’s working class veterans of the Vietnam war in the recessionary early 1980s. It was an uncomfortable truth but it’s time had come. With no little irony, over the last few decades the awkwardly critical lyrics of the title track, “Born in the USA”, have been ignored by multiple politicians who have used the song during rallies, campaign events and victory celebrations. The album is often credited with popularizing heartland rock in the mainstream which raises another awkward question. Will the multi-decade political hijacking of the “heartland” ultimately rip Main Street USA apart? If so, those Wall Street charts and our trade figures will probably look very different.