WM 6 November 2021

Quotes

The future is uncertain (entropy = from order to disorder)

Uncertainty principle

Entropy is change at work. Entropy is the "arrow of time". If everything was ordered and certain, time would stop and everything would cease to exist.

This is the paradox of the universe: it is whole and diverse, the same and always changing, ordered and chaotic. It exists and yet falling apart

2nd law of thermodynamics

In the end, everything changes

Energy is never destroyed, just transferred. Entropy of perfectly crytaline compound is zero, while entropy of the system must increase

For investors the consequences are as follows

The lower the risk and entropy, the highest the price and the lower the value

Investing is about betting on the unexpected (unknowns)

In an uncertain world, you cannot predict, but you can prepare

Investing is more about the how than the what

Avoid the popular. Do not follow the crowd.

3 ingredients of success

Learn from your mistakes

Lessons & Thoughts

One of the major differences between analysts and traders, is analysts live in a theoretical world, traders exist in the real world, and the real world can be brutal.

Don’t focus on the game you’re playing, focus on the person playing the game (you).

There are no facts, only perceptions

What is ageing?

Entrepreneurs

When stressed

Conflicts define good relationships

Bad bosses, good bosses

Data processing

Life is about making choices

No pain no gain

The good old time

It's never too late, make time your friend, not your ennemy

Macro news

Money

The balance sheets of the 4 major central banks have expanded to nearly $31 trillion by the end of September and are above $31 trillion now or % from USD 19tn in March 2020 or 63% jump over the period. Look no further of explanation of bubble rally. However, things are slowing fast (tappering+tightening). Be careful.

Fed: Damned if they do, damned if they don't

GDP. But when GDP does grow as fast as money, velocity falls. No velocity = money parked in financial assets. Velocity is behavioural. What can burst this is inflation, ie the higher price of goods and services eating into savings and destroying wealth and purchasing power of money.

Equities — and equity volatility — should not miss the forest for the trees, as they’ve never been more dependent on the Fed and the Fed has never been more dependent on economic data, which itself has never been more volatile. Also note that wealth is concentrated and that US government going after the wealthy

Fed

The decision to tapper or reduce the amount of QE was expected. It happens in a highly political context for the Fed. It is now clear that the insider trading scandals were leaked to the press as part of an internal Game of Throne battle between two camps: the pragmatic and the political, who want to transform the Fed as the money arm of the state. This fringe is the one pushing for crypto dollar as a way to direct money to people directly. The day this happens, short dollar and consider the US has become a socialist state.

End of fiscal profligacy

Also the end of checks for doing nothing is likely to drive a brutal awakening

Everything is connected

Money & happiness

Since the USD has exited the gold standard, % of American that have been surveyed (US general social survey data) and say they are “very happy”. Sad

How can pensioners fill the gap?

In 1901, Brenner made a forecast

In 2022, if we monetary tightening and fiscal tightening and inflation or deflation and elections = markets will have a rough patch

Asset Classes

Perhaps time to raise some cash."You just have to ask yourself the following: Is it worth the risk of potentially having a lower down payment if the stock market takes a dive at the exact moment I need to spend the money?"

Remimbi strength

How does that impact stocks and markets?

UK sterling falls after BoE says no rate hike

Gold & precious metals

Crypto

The adoption phase is now going full speed and the number of celebrities (latest being the newly elected mayor of NYC) mentioning they are switching to salaries in Bitcoin shows that the retail adoption is massive too. In terms of figures, the traded volumes of this new asset class are gigantic. In 19A: it averaged USD4tn volume, it reached USD 20tn in 20A. It is on track to reach USD 60tn in 21A.

The bulls are bullish

The bears are bearish

How to analyse it

Ethereum and the boom of NFTs

Welcome to the Metaverse

If it is so good, why did China banned Bitcoin mining?

China accounted for 75% of the mining of Bitcoin. Demand for energy link here. Mining has flocked to Canada and Texas. China after boycotting Australia , needed coal. Cutting factory fumes around Beijing. So banning Bitcoin has two purpose = lowering energy consumption and avoiding capital flight.

Fixed income

German 2y falls 9bp on growth slowing

US yield curve says it is slowing down = higher inflation, lower GDP growth!

This is what inflation does to correlation between long bonds (growth) and ST rates (inflation)

Australia

More troubles in China property: junk bond yields explode further as default wave gathers mo. As a reminder, the China onshore bond market totals USD 12tn.

Why does it matter? Contagion effects

Property crash is hurting China steel prices and iron ore and cocking coal and China growth

Real estate

If a bubble can burst in Chinese property 10 years after the US housing bubble, what do you think this means for the rest of the world?

In the UK

Equities

Today's Nasdaq vs the internet bubble redefining the definition of making a mountain out of a molehill

Turning slowly but surely?

Overbought S&P

Hard to beat

Weird

Mixed signals

Even small caps and Europe now breaking out on the upside

Sentiment

Allocations and positioning

Who is on the other side of the trade?

Leverage via options

Main St vs Wall St

Volatility

Equities are the new bonds?

The new bollinger range

Seasonality

Full moon 19 November to mark peak?

Secular bulls say: only half way there

What about earnings? Peaking momentum

Emerging markets do not like strong dollar

Valuation stretched

Q ratio is MV divided by inflation adjusted book value (replacement costs). Never been so high, even higher than internet bubble

Nasdaq P/sales at all time highs

Earnings yields in real term (after inflation) now negative

Market cap of US equities completely out of kilter with GDP

Commodities

We are bulls of commodities. We expect seasonal weakness soon. China will slow its economy until the Beijing Winter Olympics to clean up its air and reduce coal fuelled power consumption. This will hurt iron ore, industrial metals and coal. However, expect stimulus to resume in the Spring

Energy seasonal weakness after restocking

Food stuffs pressures on the other hand to last til summer

The last time it occurred we had the Arab spring and revolutions all over North Africa and the Middle East

However, expect inversed V shaped corrections in bubble post recovery supply squeeze

The long term future for commodities is great. Blame ESG

Uranium

China is planning USD 440bn investment to build 150 reactors over the next 15 years more than the world has built over the last 35 years! Just as Small Modular reactors are being considered for roll out in Europea and the US

The new oil

China has well understood that this is the only credible solution to the energy transition

Meanwhile, the US blames OPEC when the big offenders are the Federal government using deficit to give cheques that created spending boom just as supply chains continued to be restrained by Covid

GDP

Covid: Pfizer's pill, the silver bullet?

Not your usual recession/recovery cycle (remember the world was slowing pre Covid). So scale of stimulus + recovery = boom

ISM down

Supply bottlenecks

Confidence down and yet everybody is employed

Retailers without inventory ahead of Christmas

Inflation

Chair Powell today: "All of this is completely unusual... all the inflation is in goods, which have had negative inflation for a quarter-century" There has not been inflation in goods this high since October 1981. As Powell said, "We're in a different world now ». At the same time, if you let the country borrow and give away checks. What do you think will happen?

In the latest CPI report, two items are rising fast, gasoline and rents. One could be temporary (see below), the other is sticky. With minimum wages rising fast too, we can say costs are rising for “good”. Not good.

Inflation starting to hurt growth

Meanwhile

Themes, Sectors & Corporate news

Growth vs Value: value in vogue again?

Defensives vs Cyclicals

Buy Food & Bev

Healthcare not bad either

Buy Switzerland

Trim US

Buy backs matter

Buy backs matter: Apple has bought USD 435bn worth of stocks in eight years or the market cap of 490 stocks in the SPX 500

Semi conductors results will blow your Soxx off

Food delivery theme

Alternative Meat

Cannabis legalised in the USA

Living on borrowed times

Electric Vehicles theme

Supply disruption at Wal Mart

Financials love higher rates

Space: constellation satellite boom, next debris cleaning services

Second hand clothes

Alphabet: if it was the best company in the world?

Metaverse

Bubble stocks

All bubble follow the second law of thermodynamics. At one point they burst. When they do, the downside is significant. Covid created a major dislocation creating big winners and big losers overnight, by pulling forward growth of some companies by 3-5 years. As the market is normalising post Covid, the extraordinary gains are now reversing.

Fluidra