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Monday 24th January 2022
Hi Friend,
TSE Monday Morning Markets ...
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| | The Saturday Economist Monday Morning Markets ...
This is our Monday Morning Markets Update for the 24th of January 2022. Equity markets slipped lower last week. Markets are grappling with the reality of leaving Planet ZIRP.
Our overvaluation now averages 6%. The Fed is taking away the punch bowl. Bond yields have yet to react. US stocks were down over 5%. The risk of a further 10% draw down possible. Our Empires of the Cloud Fund was down 8%. Our Dynasties of the Cloud Fund down just 1.1%. Bitcoin was battered. Our Crypto wallet was down over 20%.
Top line, "Cash is Trash, (Jamie Dimon), Bonds are Garbage ( Bill Gross), Equities Are Overvalued (Everyman), Bitcoin is worthless (Jamie Dimon), Most NFTs are junk (John Hargrave)" ... When it comes to understanding market moves, "Any explanation is better than none" (Nietzsche). Be careful out there ...
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| | Markets down 2.5%.. Overvaluation 6.3% ...
Our global equity index basket closed down 2.5% this week. US Markets closed down 6%. Nasdaq led the way with a near 8% fall. In Europe markets were down 1%. In China, Shanghai was steady, the HangSeng jumped over 2%
Our overvaluation rating closed at 6.3%. A near 10% correction would be required to return US markets to fair value. 5% the correction required in Europe, China offers best value. The BSE appears to be the most vulnerable.
Easy money over the past year, now more difficult to find in the current year. Markets are adjusting to rising base rates and bond yields. The Fed is warned by the IMF and China about overdoing it. Stock pickers push forward, no longer the time for bulk buying. We have signed up to CNBC PRO and Jim Cramer's investment club. Better insights into Wall Street wisdom? Perhaps!
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| | Bond Market Sentinel ... US Ten Year Yield 1.75 ...
US ten year bond yields closed up 1 basis points in the week to close a 1.75. Tapering set to terminate in March this year. We expect bond yields to test the 2.00 level 'ere too long. 1.80 was the trial mid week. Expect a revisit any time soon.
UK ten year gilts closed up 2 basis points to close at 1.16. We expect ten year gilt rates to hit 1.50 later in the year.
In Japan rates slipped. Composite rates still negative in Europe eased lower. First the test of 1.80 in the U.S. and 1.25 in the UK? This is a one way call.
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| | Exchange Rates ... Sterling down $1.35 ...
Sterling closed up down the dollar at $1.35 but level against the Euro at €1.20. The Euro slipped against the Dollar back down to $1.13 from $1.14.
The strong dollar rally paused for some profit taking and technical unwind of long positions. Sanity now restored.
We expect Sterling to average £1.35 through the year, having tested £1.37 in the process. Against the Euro we model €1.18 with a slight uplift in the Euro Dollar rate to $1.15. This on the assumption the ECB will yield to peer group pressure and begin to raise rates towards the end of the year.
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| | Empires of the Cloud down 7.7% ...
Our Empires of the Cloud Fund was down almost 8% this week. Amazon was down 12%. Facebook down by 9%.
Our valuation index suggests an 11% over reach. A combined market cap of $8.9 trillion and an average PE of 33.0 suggests a period of consolidation should follow at best. Further short term weakness probable.
Analysts remain bullish on the empires of the cloud fund. The bulls anticipate a 15% - 30% gain for the fund over the next twelve months. Super bulls foresee a 45% gain. The bears consider the worst is over. What's not to like? Amazon and Apple look vulnerable.
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| | Dynasties in the Cloud down 1.1%
In China we track, our "Dynasties of the Cloud" fund. We follow the fortunes of Alibaba, Baidu, Tencent, Weibo and Xiaomi. The fund was down by 1.1% in the week, still measured as over sold.
Baidu and Xiaomi led the way. Alibaba was down over 6%.
We consider the fund to be oversold into 2022. Gains in the year ahead are expected to out perform with little downside. 8% the low level gain, 40% gain the average expectation. The medium term upside is now 75%. Baidu, Weibo and Alibaba the most exciting in the pack.
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| | Crypto Wallet down -21.1% ... Our Crypto Wallet was down over 20% this week. Bitcoin sliced through the $40,000 level to close at $35,400 for a 17% loss. $31,500 may offer some support. Not much consolation for a loss of one third since the start of year and a 50% loss from peak in November last year.
Dogecoin, Ripple and Litecoin were down 25%. Ethereum down just 10% the best performer. The Ethereum chart looks like Road Runnner's gravity defying run over the edge of the cliff. Watch Out!
"Beep Beep". There's another 20% loss to come for the wallet unless Jack Dorsey and Elon Musk can manage a "Big Ape" rally. The traders Dream Pack perhaps, always promised to be an investors nightmare.
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| | Oil Brent Crude higher ... $87.63 ...
Oil
prices Brent Crude closed up at $87.63 last week, trading at $87.97 this morning. Geo political tensions hold sway. Tensions in Ukraine persist. Sanctions against Russia, may lead to a gas pipe squeeze from the East. Talk once more of $100 dollar oil.
$80.00 may be the range over the first quarter. $75- $80 Brent Crude through 2022 is our benchmark call.
The inflation impact, year on year comparison, fades into the second quarter of the year and is eliminated in the second half. "Volatility remains in expected market demand, exacerbated by geopolitical supply side complications." Yep we really did say that!
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| | That's all for this week's Monday Morning Markets Annual Review, have a great week ahead. Access the chart books on our Flipsnack Channel ...
John
Friday Forward Guidance, The Saturday Economist, Monday Morning Markets. Forward to a Friend or Colleague. They can sign up for updates here.
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