We are finishing slowly but surely, and this week everything will start again

The week that had just ended was epic, depressing and hopeless. On the contrary, it is not because we have learned great things or because we understand better the economic situation in which we find ourselves. But last week, for example, we learned to interpret the same things from different angles, and then we interpreted them differently, and we were abandoned. I am well aware that my “catch” this morning does not matter much, but you will have to face the facts: while these markets are completely weak in their work, I could not say smart things.

Audio from May 9, 2022


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And now the work

Let’s try to summarize. Let’s try to understand the logic in which we find ourselves. Even if the word “logic” is the last word to be used in these miserable moments, I think it’s important to try to understand what makes us feel like we’re spending our time on emotional roller coasters that don’t stop. .

So let’s start first: inflation

That was a few months ago, so we packed Christmas presents, chose the size of the turkey and checked to see if we fit in our ski pants for the upcoming season. The Federal Reserve boss, Jerome Powell’s favorite, has come to turn over his jacket and express his fears that inflation will no longer be truly fleeting and controlled, as he has assured us for months. But in reality, this inflation was more in the process of farting in our faces.

From there, the market, the economy and the experts realized that the COVID effect, zero rates and easy money could eventually become a problem and even bigger than later. That the Fed will be forced to do something. Probably surgical blows with rising interest rates. That’s how we started the year. After that, Vlad the puncher attacked Ukraine, everyone cut his life in Russia in revenge, Macron took Kennedy, we realized that the price of cereals will go elevator, and oil – which was deprived of Russian production and which he faced with a return to demand for fossil fuels , and that $ 200 a barrel can no longer be ruled out. And that, as a result, the rise in prices for grain, raw materials, oil, not to mention gas, will inevitably lead to an explosion of inflation, which is now NOT TRANSITIONAL, much less controlled.

So it was obvious to us that we would have to raise the stakes to curb it all. So far we can do it.

In all directions

Yes, because the problem with all this is that we know that raising interest rates is the only weapon to curb inflation. But we also know that the weapon in question is as accurate and easy to use as if we were brushing our teeth with a jackhammer: it risks doing more harm than good. And that’s what we’re starting to hurt everywhere. We are in an inflationary phase that could lead to overheating, and at the same time the only solution we have is to stop this economy, which is barely recovering from a pandemic that may not even be resolved if scientists and the Chinese government it is worth believing. That’s why our favorite Jerome Powell is faced with a difficult choice:

1) he raises rates quickly and hard, restrains inflation, stops the economic recovery and sends us into recession, and everyone will think he is a bastard and should be hung high and short.

2) it does not raise rates fast enough, the economy rises again, but inflation hits us in the face, and everything goes to chess. At this point, everyone will think that Powell is guilty of what he did wrong, that he is a bastard and should be hung high and short.

The good news for Powell is that everything he does will be a freak and he will have to be hanged. So he knows exactly where he is going. However, when it comes to markets and the wonderful world of investing, it’s a little trickier.

Good mess

We – investors, financial experts and other traders – have very well understood the position in which we find ourselves: we must interpret what is announced, draw conclusions from this and make investment decisions for the next 12 hours. Because yes, everyone knows, since the beginning of the year we have reviewed our investment horizons: the short term is calculated in thousandths of a second, the medium term does not exceed one hour, and the “long-term” painfully reaches 24 hours. . And even. Over the years, we have acquired this ability to change our minds, such as changing shirts and then doing the opposite in less than a few hours.

This is exactly what happened last week. Here’s how we can sum up the week:

Monday ; we don’t do much… as we wait for the Fed

Tuesday ; we do little, but we are worried … because we are waiting for the Fed

Wednesday ; The Fed will then say in doubt that Europe is selling everything because it fears that the Fed will raise rates. In the evening, the Fed raised the rate by 0.5%, as predicted by about 140% of global experts on interest rates. But above all, the fact that Powell tells us that he does not intend to raise rates by 0.75%, which reassures us and makes the market explode.

Present day ; Europeans are trying to catch up, but in the middle thought the Americans. In addition, they found a new figure that will change everything: the production of non-agricultural companies. Figures we have NEVER looked at, which we have not heard of since 1984, but which have features that have never been so low since 1947. From there, we told ourselves that the economy is already shutting down, and the Fed is never going to be able to raise rates even higher, which would mean fast inflation and slow growth, which is the worst. We even mentioned the word STAGFLATION – it’s the worst. Stagflation, even if we don’t know what it means just by hearing it, we know it’s ugly. Then the market will deteriorate, as if we had just been told that we had discovered COVID-19-infected bat soup and that Pfizer’s drugs and vaccines were not working to control it.

And Friday….

So Fridayin addition to being a fish day, it was also an American employment day. We were told that in April, in addition to not finding each other on the wire, they created another 420,000 jobs. More or less 30 thousand more than experts expected. Technically, this was good news, as the number of unemployed has decreased, and it is still better to be able to find a job when you need it. So. Except that now, if you create too many jobs, you will have more people with a salary. More people are going to spend money on basic necessities: a toothbrush, new jeans, an iPhone and a Tesla S.

Mainly ; we are again afraid of galloping inflation, knowing that the Fed will still find it difficult to raise rates because it risks slowing down the economy and, without raising rates, contributing to inflation. The Kafkaesque dilemma. And, as in any dilemma of Kafkian, when in doubt, we sold everything. Even super companies that make super profits and say they are confident in the future, even they, are killed. You need to get out quickly and hide, you don’t know where, because nothing rises. In addition to oil. That will help us with inflation.

And now what?

So here we are in black shit. We have inflation that is no longer under control and that is no longer temporary. We have a dynamic but fragile economy that threatens to fail us at the first opportunity, and we don’t even know where to hide. Gold seems to be in a coma, Cryptos just screwed up all weekend, bitcoin has fallen 50% from historical highs, ten-year yield is 3.14%, oil is $ 110, and listening to “experts”, it’s still cheap compared to with what awaits us, and when you come to the office at 3:30 am to prepare for your day, you see that US futures have already fallen 1%, that Asia is in the red and that the market is behaving like a real one. bear market “.

Technically, we will not lie to each other, the charts must be torn, and the downward trend is clearly confirmed in the United States. Meanwhile, half of the gurus say that we will all die, that the market can still “easily” lose 20-25%, that we need to clear the market, suffer much more before things get better and the real estate market may well explode before our eyes. the coming months. The US real estate market, of course. We all remember how it was in 2008. And so we would do without it in many ways.

And now what will I do?

So we are in a “bear attack” mode, and we have to hold on to the railing because they can sway. We are at the beginning of a week that can be promising in terms of lying cars, doubts and lullabies. Instability is growing dangerously, and even if there is no serious news that could change the face of the world, we feel that the anxiety is palpable. It’s a week that feels like “we’ll take it this time” and may end up because it’s so obvious that “we’re going to take it.” If we don’t really accept it this time. Macron would miss Melanchon’s appointment as prime minister, and that would be the result.

In any case, reading this morning’s press Monday, we have the clear impression that we are on the verge of panic and the final sale is not yet. On the other hand, since our ability to reason has been clearly undermined recently, we also have the impression that anything can happen and that this week can be fun to watch. We have another very active week ahead of us for the quarter. There are few or few big names, but many names that are likely to give us monumental scope. I’m thinking of Roblox, Palantir, Walt Disney, SOFi, Coinbase, Bumble or even BionTech.

And here we are again

So the week started fast, and honestly, when you see what you see this morning, you hear what you hear. Well, we have the right to think what we think. Personally, I’ve been in the middle since 1987, and it seems to me that I’ve seen green and immature in this market, but for some time now I don’t know if it’s because of technology that has made us more stupid or if we just stopped trusting all computers, but sometimes I get the impression that the reaction of the markets is meaningless and devoid of the slightest reflection.

Thus, at the moment, futures are in the block, there will be no economic figure to watch or wait for, and we can already hope that we will limit the damage. Although at the same time, when you no longer believe in it, it all starts again. And then for those who want to keep worrying, I recommend reading the latest Bank of America report. They calculated very accurately that the bear market would end on October 19 this year and that the S & P500 would be at 3,000.

So you know what? See you again on October 20 at the same time and in the same place!

Have a nice start to the week !!!

Thomas Veylet
invest.ch

“He who stops learning is old, in his twenties or eighties. He who continues to study remains young. The most important thing in life is to keep your mind young. “
“Henry Ford.”