21st of July 2021

It’s interesting that in the space of 17 hours and 30 minutes, we can go from laughter to tears for absolutely no reason. In this case, it was from tears to laughter, but it was fascinating nonetheless. NOTHING, but absolutely nothing has changed since Monday’s bad day. NO fundamental news has been published. I don’t know, something that could have really made us say that what we thought on Monday was bullshit and that would have justified the rebound. Let’s face it, in 2021 you just have to find the right metric and everything is forgotten faster than light.

Delta, stagflation? My ass…

Let’s go back in time and try to keep it short and concise. A little less than 72 hours ago, the world’s stock markets were wondering if it was finally time to panic a little. We won’t judge the arguments that precipitated the market into the abyss of fear and doubt during the day on Monday, but let’s just say that the Delta variant that provoked panic and anguish in the mainstream media – the fact that suddenly, according to officials, NEVER have so many people been infected in a few days – forgetting to mention that the advent of the health pass in some countries will have provoked an avalanche of new tests. But it seems useless to recall the principle of the rule of three and the proportions, nobody listens anyway.

Nevertheless, one can find it valid to be anxious about the rise of the Indian variant, just as one can understand that we are being fed the latest rumor about the possible arrival of STAGFLATION in the coming months. It’s not easy to prove, or even to imagine, but it’s understandable that, in view of the latest economic figures, some people might come to this conclusion. On the other hand, what remains totally incomprehensible is to see the market fall violently for these two reasons on Monday and to see it turn around faster than Emmanuel Macron on the health pass, to recover almost all the lost ground in less than 24 hours by explaining that it was time to “buy on weakness”… Buying on weakness yes, but would this mean that from now on, 3% down from the all-time highs and a weakness so “STRONG”, so “VIOLENT”, that it forces the most timid bulls and the most anxious bears to change their tune and go back to the all-time highs?

I have to say that it would have been understandable if Powell had come running back to give an interview to CNBC to explain that HE WOULD NOT have stagflation. At the very least, even if they had brought Greenspan out of mothballs to force him to corroborate Powell’s claims in exchange for a double ration of jelly at the retirement home, I would have been extremely satisfied, but I have to say that losing 1.5% on Monday for all the reasons we know and taking back 1.5% on Tuesday under the pretext that “the bad news is in the prices and that we have to buy on weakness”. I have the impression that we are no longer even at the concept of “goldfish memory” and that we are getting dangerously close to the attention deficit found in litters of young puppies when we bring them a bowl of food or that of a teenager when his smartphone tells him that he has a new message on SNAP.

Anyway, we bought the “dips” and got back on track

So there you go. From now on, we don’t care about the spread of the delta variant, the health passes, the possible travel restrictions, the curfews, the possible confinements and the obligations and other vaccine campaigns. We also don’t care about the arrival of a possible “stagflation” – according to the experts, it’s all in the prices. So it took us a little over 24 hours to digest the news that triggered a massive sell-off a little over a year ago, forced central banks to set rates at zero and led to the discovery of the massive rebound weapon: the stimulus.

Today we are not afraid of anything. The economy is on life support and lives in a world with unicorns and little rabbits playing with deer in the middle of the meadow and nothing can stop it from going up, up and up. And even less to buy on weakness. At times, I have the impression that we are in the “matrix” and that there is a guy who has fun passing us different scenarios. Different scenarios where anyway in the end, it’s the Bulls who win.

Tuesday was therefore a day of relief and joy, since the bear market that we thought would start last week was once again a flash in the pan, violently extinguished and trampled by fabulous quarterly figures from two or three companies that remind us that the economy is doing well, The bear market that we thought would start last week was again a flash in the pan that was violently extinguished and trampled by fabulous quarterly figures from two-three companies that remind us that the economy is doing well and that the high dose of free anabolic drugs provided by governments and central banks is giving it back the complexion of a young girl who sleeps 15 hours a night with cucumbers on her eyes. Yesterday Netflix released some decent numbers, but was quite cautious about the next few quarters and warned that it would take time to return to normal subscriber growth in the US and Canada. Figures and statements that would have caused the stock to be killed three days ago. But yesterday was different. Different because yesterday we had to buy back everything that was weak and if possible in BIG quantities. The stock ended up unchanged after closing because finally, as Netflix is getting into online gaming platforms, it was still good news.

We can also note that Chipolte published fantastic figures and fabulous forecasts and that the stock was rising before, during and after the stock market. That UBS published a net profit up 63% thanks to the wealth management and that the stakeholders took it as a stock market orgasm in the aftermath of the stagflation scare which has already been erased from the investor’s memory. And then we can’t avoid talking about the spectacular rebound of the cruise and aeronautics sector after Monday’s collapse. Well, we have to admit that there was some “great news”. While on Monday we feared that we would never be able to travel again without a dozen injections, 23 PCR tests that should be confirmed by a salivary equivalent, two visits to the doctor and a presidential letter of grace from Macron or Biden, yesterday we learned that sales of cruise and airline tickets were down “ONLY” by 70% compared to the seasonal average. It is true that the analysts who had played the numbers at jacks the day before were expecting much worse. The rebound was therefore spectacular, with the three main cruise lines ending the day HIGHER than where they were trading last Friday. You might as well tell you that Monday’s fears are already relegated to light years. And again, Powell hasn’t come out and said he’ll do “whatever he can to save our asses”. Once that’s done, we should peacefully return to all-time highs, justifying this performance by transient inflation and moderate growth under control.

Asia in “question mark” mode

After Wall Street’s massive rebound, Asia is paying to see. This morning it is not the total excitement in the region. Hong Kong is even down slightly while the rest of the region is slowly rising. Japanese exports were up sharply and stakeholders are still wondering “what’s next” in relation to COVID 19. Yes, because if in the West we decided yesterday that we don’t give a damn as long as the central banks are our friends, in Japan we still have doubts and the word “euphoria” is not the first one that comes to mind when we carefully observe the behavior of the region’s indices. However, they are used to wearing the mask.

As for the rest, oil is still under pressure and despite an attempt to rebound yesterday, it seems that this is not the time and at the moment it is trading at $66.69. This seems to satisfy many people who feel that “this is a relief in the fight against inflation”. The time is long gone from 12 days ago when rising oil prices were seen as a sign of good economic health. The few investors who had briefly imagined buying gold to play the possible future correction due to stagflation and the variant delta, rushed to sell everything and the yellow metal is back at $1809 in a crazy atmosphere. It almost felt like a club in St. Tropez closed due to the discovery of a COVID case.

And then there are the cryptos that are in a coma. Bitcoin seems to be refusing to break down again and this morning it looks like it’s FINALLY trying to do something, even if it’s still about as dynamic as spaghetti that’s been in the pan for 12 minutes too long. But let’s stay positive and remember that Bitcoin will be 233% higher in 156 days, I’m not even telling you about the rest.

News of the day

As far as today’s news goes, it’s sad to cry. There is so much nothing that I wonder if it is not the weekend. Of course, Jeff Bezos’ participation in global warming is noteworthy, since his spacewalk yesterday made the front pages of the press, but also dumped his generous participation in the release of CO2 into the atmosphere. But what would life be without small pleasures like a trip into space or a 127-meter yacht. In addition, the French Presidency is opening an investigation into the phone tapping of Emmanuel Macron by the Moroccan government. It’s hard not to roll around on the floor laughing at this kind of news, but at the same time, it’s all we have left at the moment.

And then we’ll note that by the end of the year, Tesla’s superchargers will be open to other brands, they’re talking about Netflix’s numbers, the fact that there isn’t an economic number today, that Powell won’t be speaking, and that Japan will be closed for 4 days. They will take the opportunity to launch the Olympic Games, but apart from the athletes who sleep in cardboard beds, nobody cares. For the moment the futures are unchanged.

Numbers of the day

So there will be no economic figures today, except for the oil inventories, which cannot be considered as such, since 100% of the analysts have been wrong on the subject for 35 years, but on the other hand we will always have – and more and more – quarterly figures. Today we will have to analyze ASML, Novartis, Dior, SAP, Daimler, Julius Baer, Technip, Coca-Cola, Johnson & Johnson, Harley Davidson, Verizon, Nasdaq, Texas Instruments, Las Vegas Sands and CSX, for the most famous ones.

That’s it, the correction is over, you can get out from under your desks, the bull market is back. It remains for me to wish you an excellent coffee, a very good day and see you tomorrow. As usual.

Thomas Veillet

CIO Merion Swiss Partners