Like a tightrope walker over the Grand Canyon

Currently, the market is completely lost. We will not lie to each other. We have completely lost the slightest investment vision for more than 3 days, we live in a rhythm of quarterly numbers where we are satisfied with “less worse” announcements, we completely panic at every negative announcement, and finally, we are just worried about the idea of ​​talking about a recession. On the one hand, the occupant of the White House tells us it’s a pipe, and on the other hand, there are indicators that tell us the occupant of the White House is a pipe. Not to mention we are waiting for the release from the FED which is due tonight…and tomorrow will be worse.

Audio recording from July 27, 2022

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In order

I have to say I am grumpy this morning. In theory, however, nothing could happen, with futures up 0.75% after “less worse” than expected readings from Microsoft, Google and Texas Instruments. After better-than-expected performance at Coca-Cola and Mc Donald’s. And that’s despite the bloodshed in the retail sector following Walmart’s profit warning, which obliterated all of its competitors and highlighted the fact that inflation can hurt the consumer very badly, and ultimately lead us into recession. Maybe I’m grumpy because of the general behavior and attitude of this market. I do not know. I feel like we’re doing something wrong and keep making mistakes, but I can’t pinpoint what’s wrong.

Going back to yesterday would be of little use, except to remember that Europe did not give the most interesting day, as everyone meanwhile sits and does nothing. Today’s FED – as if it will change everything – while we wait for the Fed as the Messiah in Europe, we reject the fact that Italy’s debt is going to explode right at us and that the lack of gas will also explode in our faces in the coming months. No one (at least in the wonderful world of finance) is too concerned that sanctions against Russia are bringing the European economy to its knees – even though the brilliant politicians who lead us predicted the opposite. Therefore, investors from the Old Continent seem convinced that what the Fed does and says this evening will be the key to the rest of the events.

The statistics have spoken

On the other hand, we are not going to blame them because the Americans do the same thing. They spend their time analyzing what the market has done with recent rate hike announcements to try to guess what will happen tonight when Powell raises rates by 75 BP. It’s not a foolproof strategy, at worst the market is doing the opposite of what it used to do and we can always say “it’s not an exact science and it can’t work in all cases”. As always. But we as investors are now in a difficult situation from a psychological point of view.

If we just take the case of the Fed, rate hikes, inflation, and the recession we’re facing (despite what America’s Magical President, who has found no other way to avoid a recession than to change the very definition of a recession), is that we can no longer use the good old theories about rising rates that we had in the “old days”. When I talk about the old days, I mean the days when we didn’t have a smartphone and our priority was not to increase the number of followers on our Instagram account. In the past, when the Fed raised rates, we didn’t like it and the markets fell. The next day we moved on to something else until the next major central bank and BASTA meeting!

Not the same

Only today is not the same. Maybe it’s not the same because we think more, or because we let statistics do the thinking for us, or because we can no longer make decisions on the spur of the moment without planning for 22 different scenarios that could make us regret the choice , which we did at first glance. I do not know. I know that the way of thinking we have today is completely tortured and that in the end we are not even sure of the decision.

  • Today, we tell ourselves: if the Fed raises rates, that’s a good thing. This is good because raising rates fights inflation, and inflation is bad.
  • Yes, but if it raises rates, it’s still bad because it can drag stocks down because if rates go up, access to money becomes harder and growth can slow down. And if growth slows too much, we could end up in a recession, and a recession is bad. If the Fed raises rates, that’s bad.
  • Yes, it’s bad, but at the same time, they have no choice, because otherwise inflation will increase, and when it goes too far, we won’t be able to control it anymore. Therefore, the Fed must act. And if the Fed raises rates tonight, that’s GOOD.
  • Yes, it’s good, but it will be important to see what they do in September. Because if they say they can raise rates AGAIN in September by 75 BP, that’s bad, because right now investment experts would rather they raise rates a little less. Styling 0.5%.
  • Why? Inflation less?
  • No, not yet, but usually there will be lower inflation in August.
  • Oh good? Do we know how? We DON’T KNOW, we guess.
  • But then why is it serious, if the Fed announces that it may raise rates by 75 BP in September, if we don’t know what will happen to inflation anyway, it can always fix the shot. And then, if inflation remains high, we have to go by the basic principle: If the Fed raises rates to curb inflation, that’s good, right?
  • Yes, raising rates to curb inflation is a good thing. But it depends.
  • It depends on what???
  • Well, the Fed, interest rates, inflation and the risk of a recession…OOOOOOH and then you bore me with your questions!!!

Long story short, the Fed is going to raise rates by 75 BP tonight, and then we’re going to be asking a lot of questions about what they’re going to do AFTER, but we won’t have an answer until September, especially since we’re going to miss the elements a lot to answer to the question.

And then the numbers for the quarter

And when we’re not talking about the Fed, inflation, recession, and all the economic words that end in -ion, there are the quarterly numbers. So this is another verse. Psychologically, it was even more painful than our analyzes on FED. The bottom line is that over the last month, most of the companies publishing today have warned us that, simply put, “it’s going to be shit.” Suddenly, all the financial stars who hadn’t yet seen that this was going to be crap took the opportunity to lower their expectations. The story is that the companies in question don’t “disappoint” too much when they publish quarterly figures. So it is. Yesterday, you had a warning about Walmart’s earnings, but as we now know, when the quarterly numbers come out in mid-August, we won’t be surprised if they’re bad. The fact that this also means that the consumer is on the verge of inflation is not a big deal. It doesn’t matter because the Fed takes care of it. If you don’t understand, refer to the paragraph above.

Suddenly, companies that already said it wouldn’t be easy start going public at this point. Last night there were Microsoft, Google and Texas Instruments – speaking only of the technology sector – three recently announced that it will be difficult, and that the crisis in China, the war in Ukraine, the decline in PC sales, the problem of breeding koalas in Australia and the blaming of families Kardashian’s Instagram that it works “like Tik-Tok” could lead to a reduction in scale, which could affect revenue. As a result, all three posted slightly weaker numbers yesterday, or matching but overall LESS WORSE than expected. Not to mention, the management’s comments were quite encouraging. Therefore, the following formula is used:

Smallest worst result + encouraging comments = bull market

And the caterpillar starts again

Microsoft, Google and Texas almost rose – between 2 and 4%. Yes, I admit it’s not crazy either. But this is also the THING to keep in mind at this point: If the numbers are less bad, stocks recover 2-3% and the whole market starts to grow again, the whole sector. On the other hand, if the numbers are really bad – like Shopify yesterday or like SNAP last Thursday – bloodshed is guaranteed. Shopify took 17% yesterday. Well, no big deal, it’s only down 82% since November, and to top it all off, they’re going to lay off 1,000 people.

All this suggests that the market looks absolutely sick and Western. That everything is based on market psychology, and more on the reality of facts. Sanctions are terrible and the opinions we have will soon be more volatile than town gas. City gas, which will probably no longer flow to cities. Also, this is another problem we have. This morning, for example, futures rose nearly 0.8% on less-than-expected performance from Microsoft, Google and Texas. This surely means that Meta will be less bad tonight, and so will Amazon and Apple tomorrow. Except, as we already predicted, it’s more than likely that Apple and Amazon will refuse to announce their numbers – visionaries that we are. And also the kings of waiting that we are.

But in addition to the more or less encouraging interpretation of the numbers for the quarter, we ALSO have to remember that we are world champions at hiding problems under the carpet:

– Italian debt and government crisis: WE DON’T CARE
– The US real estate market, which is on the brake pedal and threatens to return us to the typical decline of 2008: WE DON’T CARE
– About the fact that Europe this winter will have to be heated with firewood and burning 100 euro bills will be cheaper than turning on the electricity: WE DON’T CARE…

After all, you will tell me that central banks are doing everything they can to get out of it. So there is nothing to worry about. But good. I’m grumpy this morning, but tomorrow will be better.

For the rest

Otherwise, Asia is doing nothing this morning. Except for Hong Kong, which fell 1.5% in anticipation of the Fed. Oil is back to $95, which should ease the Fed tonight, with gold at $1,712 and Bitcoin at $21,000. More or less. As for the news, frankly, the world is hanging on Powell’s lips tonight, and then Zuckerberg’s after closing time. Suffice it to say, we shouldn’t expect much from today, and it’s not a management change at the helm of Credit Suisse that will change much.

So we will spend the day waiting for the FED; then we’re going to spend the night analyzing what the Fed is going to do next, and OF COURSE tomorrow we shouldn’t be any further ahead than before. Except we’ll still be asking questions about rates, inflation, and recession.

Have a nice day, as for me, I’m going to make myself a Xanax sandwich and get back to you tomorrow less grumpy!!!

Thomas Veillet

“If you look closely, most of the overnight successes took a long time.” -Steve Jobs