Friday, November 11, 2022

Morning Note: Perpetual Works in Progress

While skimming financial gurus' postings on twitter last night, I -- and please pardon my condescension -- found it somewhat comical reading the bears angry, if not disdainful commentaries with regard to yesterday's incredible rally, alongside the celebratory sermons of the bulls.

The bears were growling out their, in their minds, ironclad theses around a tight Fed, secular inflation, a weakening economy, too-high earnings expectations, how 5% rallies only occur during bear markets, yada yada... The bulls were in uber gloating mode with how their assessments of sentiment, their short interest analyses, their gamma flip predictions, etc., had the market perfectly positioned for a massive melt up right here!

Well, make no mistake folks, had CPI come in hot, stocks would've suffered, and, thus, the bears would've been celebrating bigtime, while the bruised-egoed-bulls would've been defending their wounded theses with passion!

Nasim Taleb in his amazing must-read book The Black Swan was spot on:

"The problem is that our ideas are sticky: once we produce a theory, we are not likely to change our minds—so those who delay developing their theories are better off.
When you develop your opinions on the basis of weak evidence, you will have difficulty interpreting subsequent information that contradicts these opinions, even if this new information is obviously more accurate.
Two mechanisms are at play here: the confirmation bias that we saw in Chapter 5, and belief perseverance, the tendency not to reverse opinions you already have. Remember that we treat ideas like possessions, and it will be hard for us to part with them.

Please, don't let that be you! 

I can tell you, with conviction, our market views here at PWA are perpetual works in progress, and we never, ever, wed ourselves to them!

Speaking of our market views, we've been very definite about the unambiguous positive for global asset prices it'll be when China begins decisively moving toward ending "covid zero."  

Well, here's last night's Bloomberg headline:

"China Eases Quarantine Rules, Flight Bans in Covid Zero Pivot"

That headline sparked a nice pop in US equity futures and a monster move in Chinese equities, copper, oil and ag futures as well. The dollar took a notable leg lower to boot.

Now, not to poop all over the bullish party that China's catch up will incite, but we need to be very cognizant of the fact that, while supply chains will further open up, the country is the world's largest consumer of a number of key commodities... I.e., we're talking net inflation pressure as China reengages on the global scene.

All of the above said, and taken into account, while we're not at all calling the end of the bear market right here, clearly, the bears themselves need to seriously keep an open mind! As will we.

Asian equities rallied big overnight, with 15 of the 16 markets we track closing higher.

Europe's green this morning as well, with 15 of the 19 bourses we follow trading up as I type.

US stocks are leaning lower to start the session: Dow down 141 points (0.42%), SP500 down 0.17%, SP500 Equal Weight up 0.14%, Nasdaq 100 down 0.23%, Nasdaq Comp down 0.07%, Russell 2000 up 0.30%.

The VIX sits at 23.55, up 0.02%.

Oil futures are up 3.54%, gold's up 0.15%, silver's down 1.22%, copper futures are up 2.68% and the ag complex (DBA) is up 0.50%.

The 10-year treasury (future) is down (yield up) and the dollar is down a big 0.99%.

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 26 -- led by MP Materials, base metals futures, base metals miners, Amazon and Dutch Bros -- are in the green so far this morning. The losers are being led lower by defense stocks, healthcare stocks, silver, utilities and staples stocks.

"What is surprising is not the magnitude of our forecast errors, but our absence of awareness of it."

Taleb, Nassim Nicholas. The Black Swan

Have a great day!