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Julio López (CIIMS Attitude Management)| Wittgenstein, the Austrian philosopher who became a British citizen in 1939, one day at an exercise station chatting with a friend. Suddenly, the exercise began to recede and Wittgenstein ran after him, managing to climb up. Behind him was his amigo. la platform.
– Don’t worry, ma’am, said a station employee, the exercise leaves in ten minutes.
“You get it. He had come to see me.
Investors paint the markets in the same way, tackling exercises that do not know where they are going, or replacing routes due to the same lack of logic. Let’s take a look to summarize what is happening in the economy and its interpretation in the money markets. The truth is that over the last month there has been a sudden change in investor confidence in the market. This is something that we already discussed a month ago and that could happen, and its genesis has more to do with market positioning and seasonality than with any other macroeconomic issue. A month ago, there were significant and widespread bearish positions in bonds and inventories. Activity was heading south without slowing down and suddenly a change of track redirects activity north, forcing the plaza to hastily close short positions. If we take a look at immediate history, we see that seasonality is strong and vigorous. In 2019, the SP 500 went from 2,952 issues on October 4 to 3. 23 at the end of the year. In 2020, the building’s release of anti-Covid vaccines raised the inventory from 3,269 on October 30 to 3,756 at the end of the year. In 2021, there were 4,357 issues on October 1 and it ends at 4,766. History repeated itself last year, with an increase from 3,583 on October 31 to 4,071 on November 30. The only difference is that last year’s high was reached on November 30, coinciding with the closing of hedge fund accounts. As we see, it is a procedure that is repeated year after year, even if we try to disguise it with macroeconomic excuses.
Therefore, the movement must be interpreted from a technical point of view and not from a fundamental point of view, and the option that we could end the year at record levels cannot be ruled out.
The logic of the market is generated through two transparent objectives. On the one hand, the end of rate hikes by central banks is taken for granted; on the other, the “total” victory in the fight against inflation. We have doubts about either of those assumptions. The market is betting on a return to the old tactics of central banks with rapid interest rate cuts, which is a long way off. And if not, you’d have to think that things are getting even worse, which would make it difficult to buy stocks.
The market bought the convenient touchdown lottery ticket, but as we have observed this year for the opposite reason, the consensus in the market is almost never correct, and if one thing is clear to us it is that the Socratic principle that we have no idea what may happen to the economy will have to be the basis of our analysis.
2023 was a rare year in which “lag data” did not fully materialize, as we have already observed, but that does not mean that it has been eliminated. Strong public spending has allowed the economy to fend off the ghosts of recession, which can also arise from a sharp rise in interest rates. However, we believe that many of the effects of those rate increases will materialize in 2024, as refinancing occurs. For example, the year 2024 will be the highest year in history for European companies’ financing desires. Those who did their homework three years ago by borrowing at constant long-term rates have also been rewarded with monetary investments of their excess money at much higher short-term rates. It remains to be seen if this new edition of FOMO (risk of lack of increase) will last, because I doubt that central banks will buy this lottery ticket. To these brutal desires for debt refinancing, we must add that these Central Banks are far from having recovered a balance sheet length that can also be considered general (even if they have reduced their inventory of Treasury expenditures from a peak of 24% of the total ). the total issued is currently 17. 7%), and at least for a while they will leave their debt investments deployed and it is expected that some other actor will fill the void. For now, with the October data, we have observed how the central banks of China, Japan and Saudi Arabia have continued to liquidate their positions in US bonds at a significant pace. This would also likely have implications for the curve, with long-term rates likely to show more resistance to the decline than short-term rates.
The market (for now) will accept the “Goldilocks” argument and remain calm in the face of macroeconomic knowledge that reflects some cooling and fuels expectations of a rate cut. The funny thing is, if we go back to history once again, we have to be careful what we wish for. The stock market cataclysms of 2001 and 2008 began exactly when we were already in the throes of competitive interest rate cuts.
Economic data is starting to show some slowdown, but it is by no means pointing to a recession. It’s surprising that the U. S. index of leading indicators (a compendium that takes into account cash supply, hard work data, activity data, and even stock market performance) has been falling for nineteen consecutive months, and at the same time (remember, this is the slowest knowledge), employment signals are starting to move away from the record lows marked.
Returning to the issue of seasonality, next year we will have a presidential election year in the United States, and in 2004, all of them were accompanied by stock market scares. The year 2000, the bursting of the dot-com bubble, 2008 the currency crisis, 2012 the US debt ceiling, 2016 Brexit and the fears of the arrival of Trump (although later the market, in one of its specific dribbles, came here to see only the smart stuff)) and 2020 with COVID. La cyclicality is indeed not an invitation to celebrate.
For now, I think we’re going to see a formidable fight in Congress to stop the Democratic government from continuing its unbridled spending system as it has done so far.
A trend of what is just beginning can be seen in last week’s earnings call from the giant Wal-Mart, where consumers begin to slow down their purchases for fear of emerging prices, and even mention the term deflation after a long time. . We will see if the excess savings resulting from the pandemic have already been exhausted.
The next key question we want to answer is whether the market will continue to rely on the Magnificent Seven (you know, all AI-like ones) or will we see contrarian bets like we’ve seen in 2021. Of course, the U. S. U. S. The market is still out of place in terms of valuation and well above its old averages. In Europe, however, valuations don’t look very high, although they have to deal with the permanent glaciation of their economy.
Spain, a country whose Jobcentre offices have two sub-offices, one from the regional network and the other from the state, who reports is the head of security at Prosegur. . .
Chirp