{"id":17,"date":"2023-08-12T19:52:37","date_gmt":"2023-08-12T19:52:37","guid":{"rendered":"https:\/\/karolpelc.com\/InvestorSnippets\/?p=17"},"modified":"2023-08-12T19:52:40","modified_gmt":"2023-08-12T19:52:40","slug":"week-32","status":"publish","type":"post","link":"https:\/\/karolpelc.com\/InvestorSnippets\/2023\/08\/12\/week-32\/","title":{"rendered":"Week 32"},"content":{"rendered":"\n

MACRO<\/strong><\/p>\n\n\n\n

We are in a new regime of higher global costs of capital and increased probability of tail risks due to intensified geopolitical tensions. <\/p>\n\n\n\n

Geopolitical fragmentation caused by competition between US and Chaina and emergence of the competing blocks, which is set to rewire global supply chain. This can also strengthen position of selected emerging and frontier economies which will be able to offer more politically stable and cheaper alternative. <\/p>\n\n\n\n

World trade as a share of GDP<\/span><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

In developed markets, more indicators of economic activity starting to flash read, especially those most interest-rate sensitive. Interest rates are only starting to affect demand and consumer confidence is deteriorating. <\/p>\n\n\n\n

RATES<\/strong><\/p>\n\n\n\n

Income is finally back, and there is very significant amount of inflows, coming on the short end of the curve. 5.5% of Risk-free treasury yield or 5.25% on the Money Market funds, has become a major alternative to the other asset classes.<\/p>\n\n\n\n

We have now see a steepening of the curve (Long term or 10Y & 30Y rates are rising faster than a short term rates), due to reduction in conviction that the FED is done with hiking. Investors who say that is too soon for the FED to claim the victory in a battle against the inflation, are bearish on the long-term bonds.<\/p>\n\n\n\n

Comparing inflation to a mattress is a metaphor. To visualize it pressure of high interest rates on inflation is like a bowling ball in the middle of bed to deflate the mattress. This implies that inflation will bounce back if the Fed lowers the rates too soon (removing bowling ball will cause mattress to spring back up).<\/p>\n\n\n\n

CREDIT<\/strong><\/p>\n\n\n\n

Higher for longer rates environment is leading to changes in the role of credit providers. <\/p>\n\n\n\n

EQUITIES<\/strong><\/p>\n\n\n\n

Major indexes have been challenged by overbought conditions in first pullback since the end of April. S&P has pulled back close to its 50d moving average (50 DMA), and NASDAQ has hit 50 DMA. Pullback was mostly due to some of the magnificent 7 giving up their extraordinary gains.<\/p>\n\n\n\n

\n

Brief context:<\/p>\n\n\n\n

NVIDIA fall 10% from its high after previously increasing 230% this year.<\/p>\n\n\n\n

Apple had a worst day this year, after rallying nearly 57% earlier this year and exceeding record market cap over $3t at the end of July.<\/p>\n\n\n\n

If S&P takes out 50 DMA, secondary support is just under 4,200 points.<\/p>\n<\/div>\n\n\n\n

Past the August pull-back there is a buildup in bullish sentiment mostly driven by low odds of a recession and believe that inflation is set to undershoot expectations concluding the rates hiking cycle. For them growth is a bigger worry than the inflation, as higher-for-longer rates may decelerate the economy, especially as the real yields will be tightening due to continuously decelerating inflation relative to FED funds rates.<\/p>\n\n\n\n

Those with bullish sentiment believe that we are in new bull-market cycle, which naturally has above average multiples before the earnings have a chance to catch up. Those who believe in earnings recovery should look up to industrials and energy sectors due to cyclical recovery and due to their relative attractiveness from valuation standpoint. <\/p>\n","protected":false},"excerpt":{"rendered":"

MACRO We are in a new regime of higher global costs of capital and increased probability of tail risks due to intensified geopolitical tensions. Geopolitical fragmentation caused by competition between US and Chaina and emergence of the competing blocks, which is set to rewire global supply chain. 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