WM 17 September 2022

 Quotes

This week two widely admired monarchs left their respective stage.

 

Lessons & Thoughts

Elimination

Terry Smith

Macro news

It was a painful capitulation week. The bear market is confirmed. The Fed will hit hard at inflation. It may take 3m to 6m before stocks reach a bottom. Until then, the damage could be deep and broad.

Money

GDP vs CPI

FX & precious metals

Gold is looking dangerous as not offering good inflation hedge when dollar index is tightening

US dollar

Fixed income

2y yield heading to 4%: buy ST treasury?

Real estate

This is it. House prices collapse 6% in the US and start falling in Germany 

Equities

Relative to bonds, buy bonds

Analog

2008 path

Not a question of valuation but all about earnings

EPS revisions

Fedex, Covestro, Electrolux etc. Profit warning.

52W 

FM

IPO

Seasonality

Volatility is ready to spike

In Summary

Most stocks in trending down and not holding. With a few exception like lithium stocks, everything is in a bear market. Profit warning by bellwethers Fedex or Covestro or Electrolux are a reminder that the economic downturn has started. Even if M&A is making a come back, and demand is strong, the supply side can’t cope with inflation and sustained bottlenecks. Ukraine has taken back territory. Are we heading to a truce or is Russia retreats before striking again or retaliating with terrorising weapons. China is still in lock down and this is taking a toll on the economy, even if there is a silver lining here. The paradox of this market is that not all companies are not yet witnessing a downturn. Banks like BNP sees their model as thriving in this environment. Yet, pays 7-8% dividend yield suggesting the market does not believe. Accor, Cap Gemini etc all see strong trends continuing and again do not see the problems the market is anticipating. Even Luxury goods companies are still upbeat about China despite the lock down. Yet paradox that the largest luxury market in the world is a communist country, even if 1m Chinese (out of 1.3bn) account for 40% of Chinese luxury spending. Main risk:  GenZ's nationalist zeal can easily be turned against foreign brands. Meanwhile in the US, it's the 1970s all over again, with an incapacitated president raving about an economy that is causing inflation. The bull market is over because FANMGs, which led the last decade's gains, are no longer leading. The US dollar is not helping. The bottom will be when CPI is collapsing and Fed ready to pivot. In the short term therefore, prepare to buy bonds (2y t and 10y) and buy EMs, once the US dollar tops.

Commodities

Themes, Sector and Corporate news

Microsoft

Google