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14/01/21 09:51
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By WellWellWellRaku · Posted
No, not unless you're a 'professional investor' fml. -
Current Economic Leading Indicator Outlook: Always Look At The Big Picture The last 9 months have been nothing but epic in terms of the performance of risk asset if you have made some money great! If you have lost some, don't worry there is always a bull market somewhere. Given the current confidence and state of affairs, I think it's time we begin to begin to reassess our current economic situation. Bonds have been getting destroyed since the relation story started to take a hold late last year, commodities have been spectacular as inflation has risen due to base effects. The YoY growth in rates ? PHOAR! talk about a rally eh? Now, however, we are reaching important levels (IMHO). When I look at the economic fallout post covid, there is still a lot of scaring left over as a result of the lockdowns. Many people are unemployed and under employed and a lot of support is still needed. Yes, prices are rising and businesses are opening up again but there is still ALOT of work to be done. Inequality still needs to be addressed, countries are still battling the pandemic and the stop start nature of re-openings and closures, all pose a significant hurdle to growth. Also, before the lockdown, there were a lot of structural issues in the economy that needed to be addressed. These issues ( demographics, high government debt to GDP encouraged by record low interest rates) are still with US and over the coming months, my guess is that once the inflationary impulse is done with, we will see these issues come back to surface as they have not yet been dealt with. I use the ism as a cyclical indicator. It is a survey I use as a means to gauge the speed of the economy , the current reading for the US sits at > 64. Highest level since 1988. Normally around these levels , the ism tends to begin to decelerate. See below. ( source trading economics) Also, the employment situation needs to be addressed , > 13 million people require support from the US government. (Source macrotechnicals). Inflation is here yes, however, we should now start thinking about the consequences of higher prices; If companies have higher input prices, there is a ceiling to how much of those prices can be passed on to consumers. If the consumers are unemployed , there is potentially a demand issue which will result in companies having no choice but to take those prices down this has a knock on effect on the supply chain resulting in lower input prices. Currently, the euro area is in the midst of a 5 year high in prices. At some point, this will start to matter. Lastly and most importantly, the rise in interest rates on a year over year basis is reaching a point where historically, there has always been a slow down in the rise of rates. Cyclical pattern has been in place since 1994. This was a tool I used to prepare for the reflation theme we experienced over the last 9 months. I am not calling for imminent deflationary collapse. I am simply saying statistically, we could be heading for bumpy roads as global governments attempt to heal the scaring caused by the mandated lockdowns. So What Is The Play? The play is simple; Should lower inflation becomes a reality I would want to own Bonds, the Dollar, Gold, Gold miners Tech, High quality and low beta stocks. Not right here right now of course as I still think there is a little more room left in the tank for inflation. But I would start adding these securities to a watchlist for observational purposes . Watch their performance on a regular basis to see for periods when the market potentially starts to sniff these economic conditions out. Risks To MY View ? If we get an infrastructure bill for the US then inflation is going a lot higher and bonds will continue to languish . And it will mean my view is wrong. At that point I will stay with the reflation and growth story buying more commodities, value and growth companies until the cows some home. Good luck out there. CA Lastly, its been a little slow with ranges this week. Mad week at the offie. Will hopefully be able to get back on top of things next week. I wrote this in one take. You will probably find gramatical errors. Try to ignore them and focus on the key ideas. ☺️
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