WM 17 July 2022

Quotes

Find your why

What's your life's purpose? What do you bring to the world that is unique and serve the greater good? What is at the intersection of your all encompassing passion and the value/service you bring to others?

Be of service

Lessons & Thoughts

Simple & reliable beats complex and volatile

Mental mistakes

Writing

Peter Lynch

Never say sorry, never apologize

Math

Technical analysis

Management

How companies die

Broken glass art

Divide to rule

Macro news

Money

In the long term, money growth is structural

Monetary cyclical contraction under way

Fed balance sheet

Interbank liquidity still ok

China monetary/credit boost to the rescue?

Money vs GDP growth

GDP

USD 100 tn World GDP dominated by US, China and Europe

long term cycles: cycles within cycles:

LT growth = pop growth x productivity

5 cyclical components that shape GDP growth

Activity in the US slowing down

China slow down been exacerbated by Covid lock downs

Confidence in major institutions going down: the 4th turning has started

Confidence of small businesses at all time low

Peak recession fears?

Someone is gonna have to give

Inversed yield curve says recession is coming

Destocking under way

Jobs

Peak inflation as economic slow down bites

GDP slowing, CPI to follow

Precious metals

In the long term, gold bugs bet on

A strong dollar is bearish for gold

Bitcoin

Dollar strength dominate in a risk off market whereby quantity of dollars reduced and deleveraging forced upon markets by Fed's actions. However, we are closer to the top than to the bottom.

EURUSD reached parity this week, testing key support levels

European current account deficit ballooning as Chinese slow down and energy squeeze make for a nasty squeeze

China devaluation in sight? Not sure why

CHF remains the best house in a bad neighbourhood

Fixed income

Global debt reached USD 305tn

We have entered into a new price regime of reflation. Inflation will ease in the short term, due to demand destruction. But the end of globalisation means, demographics and resources shortages and the political will to destroy debt will mean only one thing: inflation.

Policy error

Time to buy long duration gvt bonds as volatility falls and recession starts

Countries at risk of default

Europe is in trouble as Italian prime minister must resign

Asian bonds not so good

Inflation beta of fixed income assets

Yields and duration

MOVE

Real estate

Higher mortgage rates are now taking their toll on housing transactions

China housing bubble has burst

US office space = 19% empty and USD 1.1tn potentially obsolete, as home office becoming the norm (eg 21% of office worker visit office now only once a week)

Equities

Liquidity and SPX

Bear market

What target for the S&P500 then?

No sign of bottom yet?

Perservation of capital

Bubble bursting, expect intermediary bear market rally

Long term odds: long term bullish, short term bearish. NB than in a bear market, horizon shorten such that monthly average odds are 50/50, but with downfalls higher than upticks

The bears say: de-rating done, now expect earnings to collapse

ISM and SPX

Dollar strength cannonball

SPX and CPI

52 weeks lows

Bearish moods amongst investors is bullish

Sentiment for stock market & economy

Correlations coming down will signal bottoming out process

Margin debt

Who owns US equities

Too many shorts in the short term, bear market rally in the making?

EM = time to buy as US dollar tops?

Volatility has come down = bullish

Commodities

In my view, the energy transition is the most important theme of the decade. Oil demand stands at 100m bl a day and production is below that, with three countries accounting for almost 50% of the world production: the US (c.20%), Russia (c.15%) and Saudi Arabia (c.10%) and faced with declining production curve. Capex spend has not recovered from the USD 700bn a year + seen in 2014. It has halved. Without capex, oil production would fall by 8% a year or halve every 9 years.

Bearish ST as recession hits demand

Oil to fall in the ST

Oil demand rising

Europe pays its electricity 8x more than the US

Oil following metals with a lag

The long term case for Uranium has not changed, but the short term case is linked to oil

Copper collapsing as recession hits

Base metals

Electrification is carbon efficient, but not energy efficient?

A war for resources?

Alternative assets are leveraged plays and feeling the brunt of the deleveraging cycle

Themes, Sectors & Corporate news

Cyclicals vs Defensives

Transport vs SPX

Resources no longer in favour as CPI outlook falling

Industrial sectors under pressure. A&D the exception

Traffic data strong and long term outlook still above world GDP growth

Global trade is dead, long live global trade

Space X valuation driving private equity gold rush into space (c.USD 7.7bn raised in 2021)

SpaceX valued at USD 81bn relies on Starlink, the internet connection constellation satellite which offers 250GB/s per satellite and has capacity for 364m customers right now. When fully deployed, would have 42K satellites by 2032.