Last week in Hedge Clippings we quoted John Lydgate's "You can please some of the people all of the time, you can please all of the people some of the time, but you can't please all of the people all of the time".

Observing the TV news from Melbourne this week, it seems the 14th century monk left out another (luckily small) group: Those that you can't please ANY of the time. Had they been around in Lydgate's day they may not have faced paint balls and rubber bullets, but it is also unlikely they would have been able to back up again the next day.

Meanwhile moving to markets - particularly equity and property - both of which have had an extraordinary run for all sorts of reasons, partly in spite of, and partly because of COVID. This may well continue for some time to come. The US Fed, and other central banks obviously want to keep things on an even keel, particularly knowing the level of leverage in the system, and the havoc that inflation and/or any material rise in interest rates will wreak.

COVID will eventually pass (to a greater or lesser degree, depending on some known and unknown knowns) and this will create a surge of consumer and business activity, although there are going to be permanent changes to some sectors. Most of those changes or adjustments have already been factored into equity models and valuations.

There are still the tailwinds of global growth due to demographics as emerging countries continue to develop - if not a middle class, a great mass of people who are rising above subsistence or a hand-to-mouth existence, and the infrastructure pipeline, both in developing, and developed countries.

So where's the problem, or the hesitation? Valuations are, if not stretched, certainly high by historical standards. There are two views on this - they will either revert to the mean, or remain high to become the new normal. Either way, it is unlikely they will get stretched further, except in specific sectors.

In the US retail sentiment has turned decidedly bearish whilst the S&P500 continues its upward trend, as shown by the chart below courtesy of Longview Economics. It is also worth keeping in mind that the S&P500 has doubled (admittedly from an oversold position) in the past 18 months, but even ignoring the initial COVID slump has risen approximately one third in less than 2 years in spite of COVID.

China is a problem, and whether Paul Keating thinks we should kow-tow to them or not, we'd assume he's a pretty lone voice, not only in Australia, but globally (excluding in China itself of course). Australians, or our media, may be somewhat xenophobic, but we're not alone in being subjected to their wolf warrior style of diplomacy.
 

Taiwan, the South China Sea, and the associated military build up is going to remain a (possibly the) major theme for decades or more. If less, then watch out and head for the hills, or the bunker if you have one.
 

But China is also facing significant internal economic issues, including the Evergrande property/debt/credit issue that has the potential to cause significant social ripples as well as economic ones. Evergrande it may once have been, but no longer, and the sheer scale and extent of their property empire, and the number of Chinese investors impacted will have many, both within and outside the ruling elite, concerned.
 

President Xi has ultimate control, but to what extent he can control the Evergrande crisis is uncertain. Headlines such as "Pop goes the Chinese Property Bubble" in the Wall Street Journal, or "Has China's Housing Crisis Finally Arrived?" from Foreign Policy may be slanted by an outsider's view, but the size and extent of Evergrande's risk to the Chinese economy are significant, and yet to play out.

Finally, it wouldn't be Hedge Clippings without the opportunity to take a swipe at ex PM Kevin Rudd, who, always the opportunist himself, this week wrote a piece for the French newspaper Le Monde criticising the decision to cancel the French submarine deal in favour of a joint US, UK version.

Given France's success (or lack of) on the battlefield or at sea over the past few centuries, including more recently in WWI and WWII, we're probably better off without the French - or their submarine