Black Friday, Black Monday, Black Week … I’m going back to sleep

If there’s one thing we can recognize in the market, it’s something he quickly understands. You just have to explain it to him for a long time. One thing is for sure; that he realized last Friday. It was well understood that inflation had not yet “peaked”. It was well understood that the recent rate hike was not enough to curb inflation, and it was well understood that we were still at risk. At risk of recession or, worse, at risk of stagflation. The only problem is that if the weekend was rotten because of this 343rd inflationary realization, the beginning of what is beginning also promises to be good.

Audio from June 13, 2022


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Not a recession

Yes, it is true, Mrs. Ellen believes that there will be no recession because the consumer is too strong, too hard. On the other hand, she believes that gasoline prices are not falling. But despite the fact that oil is rising slowly but steadily, despite rising food prices, the finance minister is calm. It is true that so far she has been so accurate in her view of inflation that there is really no reason to ask questions.

And then we say that the price of gas at the pump hurts, and it will continue, but if we just look at the price of food, I’m not sure it will get much better. If we take, for example, a box of 12 eggs, which in May 2021 cost $ 1.62, today the same box costs $ 2.86. And the reason to say that you do not eat eggs does not work, because they are contaminated on almost everything. Almost every type of food in every corner of the planet. We even read everywhere that Putin has even implemented a plan to go on a hunger strike in the Middle East and Asia. In order to in-extenso provoke demonstrations and immigration to destabilize the West.

But before we talk about conspiracy and military strategy, let’s say that Ellen knows what she’s doing and knows what she’s talking about. Despite the fact that the CPI on Friday left big scars on the market.

Once inflation is always inflation

Therefore, we will not ask too many questions; Since last Thursday, we have been in the mode “Oh my God, my God, they will raise the stakes”, as well as in the mode “Oh, my God, my God, inflation is out of control.” Do not look too far, the markets work only because of this and respond only to such news. And to add a layer, the week ahead will be no different.

But on Friday we had inflation. Those who were to show us that “the Fed’s efforts have paid off.” Except, in fact, not quite. In May, there will be a new “maximum of 40 years” for inflation in 12 months. Thus, we are at 8.6% against the previous record in March at 8.5%. Even so, it is not 4% higher, but because economists, analysts and other dreamers in global finance had much more “reasonable” expectations than this, assuming that they all agree that things were better and that inflation was (MAYBE, saw its peak. Except that suddenly we are not so convinced. Not to mention that since the beginning of June, oil has risen a little more. The fact that this weekend we are breaking records for gasoline prices on the fuel pump, and that doesn’t bode well for June’s inflation.

So we had to adjust our expectations, reconsider them and ask ourselves if we missed something. Probably because of this, the market collapsed on Friday and that this morning, this morning on Monday, is clearly not better, futures are already at the bottom of the tank with a drop of 2% on the Nasdaq. futures. You have to admit that it makes you go back to bed.

And now what?

But then what should we think about the future? Also, is there a future in the depressed world of finance with rising rates and inflation?

We will also not be too dramatic, we will need to remember that the psychological state in which we find ourselves is getting closer and closer to a state where we find ourselves at the end of correction, when no one believes. it is more, and investors are torn one by one, telling themselves that “this time it’s over and that they will NEVER buy a stake again.” We are probably not quite at the bottom of the pit, we still have to make an effort, but the psyche is starting to crack …

And then this week we will have the Fed. And it can be funny there. How ridiculous, given that we know and have seen what we are hearing at the moment, it will be difficult to analyze the response and statements of the US Federal Reserve. Therefore, we are going to return en masse and almost exclusively to the topic of inflation, as the Fed meets on Tuesday and Wednesday. Jerome Powell will announce the decision on the bet on Wednesday night. And, frankly, I wouldn’t want to be in his shoes.

The head of the Fed will have two options:

1) Raise rates by 0.5%, and the market will fear that inflation will be completely out of control due to lack of “aggression” by the Fed

2) Raise rates by 0.75%, and the market will fear that the Fed will provoke a recession due to excessive aggression.

Yes, because today – according to the poll – almost a quarter of economists expect an increase of 0.75% to break the backbone of inflation – if that’s enough. And since the CPI will still be higher than the CPI tomorrow, it will also lose force, and the quarter could turn into three quarters. Suffice it to say that Powell will have to react deftly and find the right words. Whether he raises rates by 0.5 or 0.75, I have a feeling that marketers will be extremely sensitive and very attentive to his words. Simply put, Powell will have a choice between plague and cholera. This, by the way, is a bit like the elections in France.

The graphics are scary

So this morning futures are already in the basement. The charts are starting to look like something we don’t like at all, and if we assume that the S & P500 will close where it is now, it will mean that we have entered the bear market according to the US benchmark. We are looking for lows from the end of May. Blessed are the gods of finance when we have decided that the break in raising rates may come around September. Except that it is regulated. Given the inflation figures, we will have to gently start imagining that we could quickly find ourselves in a recession if the Fed derails and starts raising rates sharply. In any case, more brutal than expected.

Therefore, we always return to the fact that if we assume that the recession should be “assessed” in the market, we will have to start thinking that the market support point will be somewhere between 3,000 points, which would mean an extreme fall of the last bear markets and 3400 points , which more or less represents a moving average of 200 weeks – an average that is difficult to overcome in general, except for the great crisis. It remains to be seen when we will find ourselves in a major crisis – or maybe we are already there.

Not better in Asia

Now Asia does not like the closure of New York, as well as the fact that inflation shows us that it does not stop, and the Fed may panic on Wednesday. But Asia also dislikes the fact that they have rediscovered the explosion of COVID cases in Beijing, that the 214th quarantine seems inevitable and that the growth of the whole country could suffer … again. Therefore, it is bloody in Asia. Japan fell by almost 3%, as did Hong Kong. China, as always, limits the breakdown and fell by only 1.1%, but also does not play by the same rules as the rest of the world.

As for gold, we have $ 1,866, and people seem to think it’s a good way to hedge inflation, even if it’s in words. The only good news is that oil is falling slightly and coming back below $ 120, which may be a source of relief for some, given that under $ 120 we felt more comfortable. Although at this price, historically and empirically, we are still in a “dangerous zone of recession.” On the other hand, the worst today is Cryptos. Bitcoin has finally given up and is already at a low on May 13 – the final support should be around 25,400, and after that there are not many left. For the rest, the broadcast costs only $ 1,300. And then, in the good news of the sector, we note that Celsius – one of the largest lending platforms in cryptocurrency has stopped transfers and withdrawals due to “extreme” market conditions. This will definitely help.

New news

In the news of the day we must admit that there is nothing to say. But note that the crisis in Ukraine is heard in the headlines of CNBC, and Zelensky predicts starvation for the entire planet, if the war continues and the next thing that erupts will be rice. Meanwhile, everyone is betting on tomorrow’s Fed meeting and the PPI. More and more economists are betting on the American recession in 2023, and the French media are only talking about elections to the legislature, which are not even interested in the French to see the level of participation.

On the other hand, there may be something we need to start watching, and that is American real estate. Last week, the number of new mortgages fell to a 22-year low – meaning “even lower than during the subprime crisis” – and if we look at rising mortgage rates, we may begin to worry about a possible real estate crisis – which will add to that we already feel.

In January 2021, the 30-year mortgage rate was 2.65% and the average house price was $ 400,000. Last week, the 30-year rate was 5.23% at an average price of $ 570,000. Assuming that the buyer pays 20% of the down payment, this means that in 18 months the average rent for the debt has increased from 1250 to 2500 dollars – more or less. Basically, it doubled. Not sure if this is a selling point. This will affect procurement, construction as well. The price of firewood has dropped, and it seems that the perfect storm is coming, and we continue to drink cocktails on the beach. fine. I stop, I become a bear.

Here’s what we can say about this beginning of the week. It’s not very funny and does not promise the best in the coming days. Lots of shocks and lots of interpretations that will make us do 360 in all directions. I think we need to stay hydrated, drink plenty of water and hope that the Fed will communicate softly and moderately.

In the meantime, I wish you a wonderful Monday and see you tomorrow, at the same time, in the same place. May the power be with you!

Thomas Veylet
invest.ch

“Remember, no one can make you feel inferior without your consent.”

“Eleanor Roosevelt.”