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Monday 17th 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 17th of January 2022. Markets are grappling with the thought of leaving Planet ZIRP. Over extension now threatened with tapering and a tighter monetary policy. FOMO, Fear of Missing Out, now challenged by FOBIA, the Fear of Being In (Alone).
The Fed commitment to rate hikes into 2023 is coming into question. Markets are braced for a reset especially in the U.S. Our overvaluation averages 16%. The risk of a 30% draw down persists. The Fed is taking away the punch bowl but nobody wants to leave the party just yet.
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 level ... Overvaluation 9.8% ...
Our global equity index basket closed up 0.1% this week. Our overvaluation index was 9.8% led by US stocks. Hang Seng and Shanghai offer best value, it would appear.
Hong Kong and Bombay hauled the basket higher, with a small assist from London and the FTSE. Elsewhere markets eased lower following recovery from mid week lows.
Easy money over the past year, will be more difficult to find in the current year. Markets are trying to adjust to rising base rates and bond yields. FOMO v FOBIA. "Fear of Missing Out", versus of "Fear of Being In Alone". It will make for a cautious approach to equity allocation.
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| | Bond Market Sentinel ... US Ten Year Yield 1.74 ...
US ten year bond yields closed down 1 basis points in the week to close a 1.74. Tapering set to terminate in March this year. We expect bond yields to test the 2.00 level 'ere too long. Doubts are appearing in the market about the strength of Fed commitment to raise rates much above 1.50%
UK ten year gilts closed down 1 basis points to close at 1.14. We expect ten year gilt rates to hit 1.50 midway through the year.
In Japan rates were level. Composite rates still negative in Europe eased lower. First the test of 1.80 in the U.S. and 1.25 in the UK?
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| | Exchange Rates ... Sterling level up $1.37 ...
Sterling closed up against the dollar at $1.37 but level against the Euro at €1.20. The Euro rallied against the Dollar down to $1.14 from $1.13.
Much was made of the Sterling rally. Apparently, the markets believe Johnson's abrupt exit will be followed by the move next door by Rishi Sunak. It is thought, Sunak will be good for business and investment. He may even have a plan.
Which all goes to show, when it comes to understanding market moves, any explanation is better than none. The reality more likely - the strong dollar rally has paused for some profit taking and technical unwind of long positions. (Nietzsche).
We expect Sterling to average £1.35 through the year, testing the £1.38 level 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 level 0.2% ...
Our Empires of the Cloud Fund level 0.2% in the week. So much for the rotation away from high tech stocks. Google was up 2.0% as Microsoft drifted lower down 1.2%
Our valuation index suggests a 16% over reach. A combined market cap of $9.6 trillion and an average PE of 36.0 suggests a period of consolidation should follow at best.
Analysts remain bullish on the empires of the cloud fund. The bulls anticipate a 15% gain for the fund over the next twelve months. Super bulls foresee a 30% gain. The bears anticipate a modest 5% worst case draw-down. What's not to like?
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| | Dynasties in the Cloud up 2.0%
In China we track, our "Dynasties of the Cloud" fund. We follow the fortunes of Alibaba, Baidu, Tencent, Weibo and Xiaomi. The fund was up by 2.0% in the week.
Tencent and Weibo led the way. Alibaba was up 1.5%.
Analysts consider the fund to be oversold by the end of 2021. 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 up 9.9% ... Our Crypto Wallet was up 9.9% this week. Bitcoin trades at $42,764 for a gain of 3%. The test of $40,000 dollars we called last week was tested within hours. The big apes rallied round to pull the crypto to $44,000. A bit too much to hold by end of week.
Dogecoin the star performer up 25%. Elon Musk announced you can now by a Tesla with Dogecoin. Next a trip to Mars with SpaceX payable by a meme. The stars the limit for this trading Dog.
The wallet is a trader's dream pack. Always the potential for an investor's nightmare. Not for the faint hearted.
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| | Oil Brent Crude higher ... $85.44 ...
Oil
prices Brent Crude closed up at $85.44 last week, trading at $85.33 this morning. We will update our price outlook later this week as we update our inflation outlook.
$80.00 may be the range over the first quarter. $75 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.
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| | That's all for this week's Monday Morning Markets Annual Review, have a great week ahead.
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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