A.M. Brew - May 3rd, 2022
Alibaba (BABA) Shares yo-yo when state broadcaster CCTV reported Hangzhou officials had placed curbs on someone named "Ma". The report was later updated to add a third character to the person's name, and the accused individual is an IT R&D director, not billionaire Jack Ma. Ironic how this happened right into a 30minute 9 sell setup and start of the 13 countdown.
European Union considering African Gas to replace Russia. Our Take: It will take a while to reduce fossil fuel dependency and change supply arrangements. Oil & gas should continue to stay strong near-term. Shares of African Energy Corp turning back up on the Stockholm exchange
Ten-Year yields trading over 3% for first time since 2018. UK Yields are now at 2% and Bunds are at 1%. Our Take: Equities are still the only game in town - not gonna get rich at 3% unless inflation is negative 5%. Please contact us for information on interest rate research.
Hong Kong speeding re-opening of Bars & Beaches starting May 5th. Our Take: Shanghai's lockdown is Beijing's way of saying "we are the #1 city so stay in-line". Shanghai will re-open soon with a "miraculous" drop in cases. They can't lock up Shanghai against their will too long, giving them a taste of power is good but too much oppression is negative.
White House considering Tariff reductions to combat inflation. Our Take: It took them this long to figure this out?
UK Sterling & Japanese Yen Crashing. Other major countries are taking the FX route to offset economic weakness. Even the Chinese are doing it. The Fed is taking its FX cues from Putin and keeping the currency strong.
Sundial Capital Research said "Buy the Dip is Dead". Through April 30th, the next-day return following a down day was negative 0.18%, which was the worst since the early 1970s. Our Take: Now is a much better time to buy the dip. We have been putting DeMARK updates the index and ETFs. Below are links to the latest:
Yesterday the same thing happened in Europe while we were sleeping: a Citi trader spurred a flash crash in European and especially Swedish stocks. Sweden isn't worth 8% less in 5 minutes. People are manic right now. Our Take: Risks of a final crash are elevated, but crashing from these depressed levels would be a good buying opportunity in quality names. Yesterday's European flash-crash and S&P price action mean that any crashes may not give you much time to buy - you might have an hour or you might have 10 minutes to monetize opportunities. Thus, be prepared upfront in particular names: fortune favors the bold & the prepared. You didn't have much time in Alibaba, but the opportunity was real. The fact that this happened in Hong Kong, Europe and the USA all at different times on the same day is significant.
The Federal Reserve & the Bank of England have policy meetings this week. Expect tough rhetoric out of the Fed. Rhetoric is cheap and nobody lies like a Central Banker on the eve of devaluation. Our Take: Tough talk but No Surprises, based on these meetings: lean Bullish on both Bonds & Stocks. June eurodollars are 30basis points below the Dec 2023. If one expects cuts, 30 basis points isn't cheap enough to warrant going out out to soon and risk missing the big picture trade. Big DeMARK countdowns completed on the Eurodollar curve... please subscribe for more updates on the pricing page.
Dalio email yesterday. Ray wrote: "Bubbles can take a long time to unwind (two years in the case of the 1929 bubble, one year in the case of the late ’90s tech bubble) and typically go to the opposite extreme, so just because they aren’t at a bubble extreme doesn’t mean they are safe or that it’s a good time to get long. In fact, US stocks in aggregate still look overvalued by our measures. History shows that once the popping begins, bubbles more often overcorrect to the downside versus settling at more “normal” prices." Our Take: Ray is usually right. Nothing is cheap yet, but his longer writeup implies that we are close to fair value in equities. Remember, stocks compete with bonds, which got a lot more attractive recently.
Roe vs Wade to be Overturned?: Politico reported last night that they got a draft copy of the Supreme Court memo overturning Roe v Wade. Our Take: If true, it will make the political environment more toxic. Toxic politics are not good for business and that ultimately is not good for markets. Generally one can look at history as a guide of how to invest, but our take is that an even further toxic political environment is a bit less rosy for stocks than the last 100 years of history would suggest.
Good luck