19th of July 2021
We won’t lie to ourselves, the second part of last week was not the best of our lives. The indications and signals that the stock markets are giving us are not the most euphoric that we can dream of in the perfect financial world in which we have been living for months. We find ourselves in a rather delicate situation, because we don’t really know what to hold on to anymore, and right now, we have the feeling that we are being taken off the ladder we are on and that we don’t know very clearly where the bottom of the hole is in case of a fall. We hope that hoping for a miracle will be enough.
Rotten week and not better today
We talked about it on Friday, there is something that doesn’t feel right and we have the impression that we are losing our footing. We have to admit that it’s been a while since we started the week with futures in such bad shape and doubts in our heads. As for the indices, this is the first time in almost a month that the US indices have finished down for the week and we cannot boast of having spent our week breaking records. Remember, two weeks ago, we were wondering if we would be able to break 8 altitude records in a row. Well, this morning, we are almost wondering if we will be able to have a day of increase during the week to come.
The week we left behind was rotten and we wonder if the one we have in front of us will really be better. Far be it from me to play the bird of ill omen, but let’s just say that when you see what you see, you are right to think what you think. Let’s be very clear; for the past two weeks we have been clinging to the unfailing support of the FED and its boss, Jerome Powell, to find the energy to believe, the energy to go higher and the desire to tell ourselves that “so far, so good”. We were also “reassured” about the state of the economy, whether from a macro or a micro perspective. On the macro side, the numbers are good – although there is some wavering between growth and inflation, and the indications from looking at the 10-year yields is that there seems to be a fair amount of agreement on the principle of transitory inflation and controlled growth, while counting on a return to full employment this fall. On the micro side, the start of the quarterly numbers season seemed to reassure everyone since “Corporate America” has never been so strong. Except that right now, we find ourselves in a situation that is based on the “interpretation of the numbers”, rather than on the reality of the numbers. Let me explain…
Good news is bad news
What we could see and remember from this first week of publication is that we “knew” it was going to be good, and since we had anticipated everything, people simply said to themselves that if we knew it was going to be good and it was confirmed, it also meant that we had to sell everything, since we already KNEW. There was no surprise, the numbers are good overall, but nobody is surprised, so we are selling the news and unless we publish numbers 30% above expectations, increase the dividend by 300% and announce a great end of the year and ensure that the next 5 years will be nothing but euphoria and joy, any company that publishes this quarter, will be doomed to take profit. That’s the impression given by this first week of the quarterly season. We’ll see how it goes in the next two-three weeks, but when you see the performance of some stocks BEFORE the release – I’m a little scared.
Just looking at the GAFAM’s, I can’t imagine what they’re going to have to release in order to continue this near-vertical trend the market is currently giving us. But let’s not get carried away, we have to keep our heads. Nevertheless, we have to admit that the “bearish” indicators are in great shape and that we cannot ignore them too much at the risk of getting our fingers slapped. The unshakeable confidence seems to be crumbling and, as Josiane Balasko said in the movie “Les Bronzés font du ski”: “I’m going but I’m afraid”.
The return of a certain latent negativism
To put it simply, this week that is beginning does not seem to be one that we really want to experience as an investor. Far be it from me to play the “bearishs” of service, it is not my style, but it is clear that – for the moment – the technical indicators are not at their best, Powell has lost his stamina and his niak which made us want to believe in it, the good figures of the American companies are completely integrated in the minds of investors, oil is under pressure and hurting the oil sector, commodities continue to be a problem for inflation and the reality of consumer prices is starting to make the average American grumble and express it a little louder than two weeks ago and start to ask about the notion of transient and more importantly, how to identify and interpret a transient that is lasting.
No, because let’s be honest; Powell has been talking about transitory inflation for months, but he never defined an indication of duration. What is transitory? 3 months? 6 months? 2 years? If he is counting in years Warren Buffet who is investing for the next 30 years at 90 years old, it could be transitional 2 years, but if he is talking in market language mode 2021, beyond 2-3 months, I fear that it might tilt in the tortured minds of some. So here we are on Monday July 19th: futures are in the red, we have an avalanche of quarterly numbers coming out this week and we already know it’s going to be great, so we’ll have to take profits and Powell shouldn’t give us a replay of what he did last week. In conclusion, after having sung all spring, we risk finding ourselves very deprived when August comes.
In Asia, there are already doubts
This morning Asia is already setting the tone. All the indices are in the red. And dark red for Tokyo and Hong Kong. Japan is losing 1.3%, the Hang Seng is down nearly 1.8% and China is down 0.3%. The fear of this Monday morning – in addition to the problem of growth, inflation and a possible rate hike scheduled for 2034 – is the return of COVID in the statistics. While for weeks we have been seeing that the Indian variant is starting to cause problems all over the world, this morning we are becoming aware of it. The good news is that politicians have already clearly identified the cause of the resurgence of the virus, since they all agree that it is all the fault of those who are not vaccinated. So the solution is obvious. In the meantime, the world markets are asking themselves questions. Some of the same questions they were asking in February-March of last year, when it became clear that this was something other than a “big flu”. The question remains whether we can get the panic back on track to get the stimulus out of the hole, as central banks and governments around the world seem to have found the golden goose and the philosopher’s stone at the same time.
In summary, this Monday morning is one of those that we wish we didn’t have. I would like my day to be spent by the pool doing nothing. Except that now, we’ll have to spend it wondering what’s going to happen next and if there’s something broken in the magic plan set up by our higher authorities and if we should sell everything, go to the beach and come back in September for the crash season. No, frankly I don’t like that very much. And then, on top of not liking it too much, I don’t even understand why gold is down when the mood is so rotten. The yellow metal is at $1,813 and black gold is going down and back over $70 since OPEC found a way to increase production. And I’m not even talking about the Cryptos which seem to be in a coma, mixed with a big nervous breakdown. I don’t remember much, what was the 100% guaranteed Bitcoin goal for the end of 2021? 100’000 ??? No, that’s just to update my files.
News of the day
In today’s news, there’s talk of COVID at the Tokyo Olympics, there’s talk of COVID and Boris Johnson having to isolate himself because he’s a contact case. In short, there is so much talk about COVID that even Zoom’s takeover of Five9 via a title exchange is of little interest to anyone. By the way, it is interesting to note that – as in 2000 – the “new techs” who have no cash, are buying up what they like by paying with their own shares. I’m just saying that. And then, let’s note that Joe Biden attacks Facebook by saying that the misinformation circulating on it regarding COVID is “killing people” and that it’s all Facebook’s fault. Zuckerberg counters by saying that’s not true because in fact Facebook is doing everything to save humanity.
Basically, we are in kindergarten and if you have the opportunity to not come to the office for this day, I think it is worth it. On the economic side, we’ll have nothing and on the quarterly side, IBM will be in the spotlight today. For the rest, we’ll meet tomorrow to see if we survived this rotten Monday or not.
I wish you an excellent coffee and a very good day and I say: See you tomorrow!
Thomas Veillet
CIO Merion Swiss Partners