Follow the data not opinions

yours's or anyone else's

We are still very much in a global bear market. Global GDP in the US, across Europe to Asia and China is slowing and recessions look inevitable especially with central banks adding to the growth issue by aggressively raising rates, this too is a global phenomenon including emerging as well as western central banks. 

Inflation as a result is likely to start slowing too as demand gets crushed but we won’t be going back to Fed “hopium” 2% levels before the second half of 2023 at the earliest. In Europe CPI hasn’t yet caught up with PPI estimates yet by quite a long way. 

Slowing growth and slowing inflation (or stagflation in Europe) are not market positives. We have already seen reports from FedEx and Ford pointing to markedly lower, earnings, EBIT and this is only going to continue into Q4 and most likely Q1 of next year. The earnings of the FANG stocks come predominately from overseas (plus 50%) and around 25% from Europe. Their share prices have already suffered but more pain to come when earnings disappointments kick in. 

Sovereign debt should at some stage be a buy. Tempting at current US yields (the 10 year is inverted over the 30 year; that doesn’t happen often) but the momentum in yields is still very much upwards. Who is going to buy the flood of gilts coming our way courtesy of Trussonomics? 

I’m not a great fan of HY either unless you can be very selective picking your credits. If corporate earnings are going significantly lower then interest rate cover starts to become an issue. 

Some Alternatives, and I mean a handful, have a strong negative correlation to most other portfolio components. The Atlantic House Uncorrelated Strategies fund is one and have a look at pure trend followers too while you are at it -  Dunn WMA is having a very good 2022 but please do your own due diligence.

It would be unlike me not to mention gold would it not? The barbarous relic is getting carried out as a result of perceived real rates rising but if/when the market realises that inflation isn’t going back to 2% anytime soon then it will be firmly back on the buy list and the miners will be 10 baggers at some stage. 

Volatility isn’t going away either. NASDAQ and Russell 2000 vol numbers are both north of 30 which is the level above which “unpleasant things happen” and the VIX is not very far behind. So buckle up and see how much risk you can diversify away into true non correlating assets! 

The clue for all the bottom pickers out there is that:-

1. We haven’t seen capitulation yet. i.e. on bounces people are still buying the crap

2. There are some horrendous earnings numbers in the pipe that will make FedEx and Ford look good!

3. Inflation isn’t going back to 2% anytime soon; the back end of 2023 if we are lucky

4. Any “resolution” over Ukraine, and it could get a lot worse, won’t make any difference at all apart from a knee jerk bounce which will be another great shorting opp😎

5. The U.K. and the EU are becoming emerging market economies ie they have weak currencies relentlessly pushing up import costs aka more inflation. Currently the dollar is the only game in town but all good things come to an end eventually, and any signs of a Fed pivot and the greenback will turn “red”.

6. Cash is a viable asset class while you wait for the aforementioned bottom. What you may lose in the short term courtesy of inflation will be more than made up by buying stupidly cheap value at the bottom

Remember the mantra, especially during bear markets - and we are still in one;

follow the data not opinions.

The information, data, analyses, and opinions contained herein do not constitute investment advice, are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and are not warranted to be correct, complete, or accurate.