Wednesday, September 21, 2022

Morning Note: Key Highlights

Yeah, it's Fed decision day, and let's just say we've beaten that horse aplenty herein of late... We'll tackle the outcome, and the market reaction, in tomorrow's note.

For today, let's revisit some key highlights from our latest messaging:


Yes, tomorrow's Fed decision is a biggy for near-term market direction. But of course it's beyond the near-term that we're ultimately concerned with... As I hear myself repeating during virtually every client review meeting these days, we -- as we see the world at this juncture -- have high conviction with regard to our present strategy on a 5-year time horizon. It's the next 5 (or 15) weeks or months that remain notably precarious in our view.

While we do not foresee a 2008 (in terms of depth) scenario unfolding (although we remain open to all possibilities), our analysis nevertheless says recession (albeit relatively mild) looms.


...let's not lose sight of the fact that there's also the services side of the economy, and that it makes sense that the covid-induced-spending-on-goods-extravaganza was bound to come way off the boil.

For now, the evidence suggests folks are still spending, but more so on experiences, as opposed to exercise equipment...

Last Friday:

Speaking of the Fed, there seems to be a growing popular view among some credible macro actors that there'll be no pivot (to easier policy) until inflation gets all the way back to their 2% target. And that they'll be breaking the economy (and the markets) to get there.
That -- that they'll not budge till 2% inflation is the read -- is not presently our take... Here's my response to one such commentary:
"Disagree. Fedheads have been deftly stating that they need to see inflation convincingly moving “toward their 2% target.” Clearly that allows for a pivot before 2%. Something beginning to break will see inflation wane (toward 2%) allowing for a potentially aggressive easing."

Last Thursday:

As for the latest stock market action, presumably, retail investors remain a serious force in the present landscape.

Here's Bloomberg's Tatiana Darie on the topic:
"Individual investors have bought stocks again when everyone else was selling. But the risk of them throwing in the towel has risen, particularly if equities were to re-test this year’s lows.

At $2 billion, Tuesday saw the second largest day of retail net flows into US stocks this year, according to the latest report from Vanda Research. But individual traders have decreased their participation over the past month and a larger selloff in stocks could force them to the sidelines. After all, they’re still sitting on hefty YTD losses of about 35%, a Goldman Sachs basket of retail favorites shows."

Last Wednesday:

As for present-day equities, our base case remains that we're still in the throes of a classic bear market... I.e., we see a bit more downside (value generation) before this one's all said and done.

Asian equities followed US's lead overnight, with all but 1 of the 16 markets we track closing lower.

Europe, on the other hand, is mostly green so far this morning, with 15 of the 19 bourses we follow trading up as I type.

US stocks are higher to start the session: Dow up 142 points (0.46%), SP500 up 0.49%, SP500 Equal Weight up 0.49%, Nasdaq 100 up 0.29%, Nasdaq Comp up 0.24%, Russell 2000 up 0.09%.

The VIX sits at 26.81, down 1.18%.

Oil futures are up 1.37%, gold's up 0.47%, silver's up 0.57%, copper futures are down 0.66% and the ag complex (DBA) is down 0.05%.

The 10-year treasury is down (yield up) and the dollar is up 0.50%

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 23 -- led by defense stocks, energy stocks, industrial stocks, consumer staples stocks and water stocks -- are in the green so far this morning. The losers are being led lower by Disney, uranium miners, Nokia, emerging market equities and MP Materials.

"The key over time is to have the discipline to capitalize on your successes and minimize your mistakes because, ultimately, the game is about preservation of capital."

--Drobny, Steven. Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets 

Have a great day!


  1. Great key highlights! Thanks!
    LOL. I have thrown in my towel!
    Rate hike is forecasted to be as high as 4.6%. The market will react accordingly. Like you always said all along that things will get ugly before they get better.

    1. Thank you Sam! And they will ultimately get better... Just more to play out between here and there we suspect

    2. I am not rattled, but patient instead. I believe that because we have many years of easy monetary policies, investors are too complacent with the market. Fed Powell is doing the right thing to tighten up the market. I wish that he could have done it sooner. Interest rate hikes are in for a long haul in order to bring down inflation. The market finally realizes Fed Powell is serious about fighting inflation.