Actionable Trading Analysis &
Markets News for Enhanced Portfolio Results

On March 8^th we closed our European Banks holding position because of the negative news regarding bankruptcy of SVB Bank and the bad news sentiment regarding the financial sector. With 26% profit it’s not as bad, but our decision was related also to some other factors that affected the financial sector, which we’re going to describe next in this article.

The SVB Financial Group (SIVB) fallout is creating a mini credit crunch, with the banks stocks dropping aggressively. However, the SVB fallout reveals that banks are in trouble again. We don’t think this is even close to the 2008-type financial crisis because SIVB it’s not a major player in the arena. SIVB it’s a bank that used to fund IT&C projects with an easy credit policy. The fallout of SVB Financial Group (SIVB) is close related with rising interest rate from FED because many IT&C companies can’t pay the debt.

Our selling order it’s not related only to SIVB bankruptcy, other catalyst will also affect the financial sector.

The starting point to understand the current banks' troubles is the Fed's massive liquidity injection during in response to COVID. The Fed injected $4.7 trillion into the financial system from 2020 to 2022 via asset purchases or QE. Instead of making the loans, commercial banks bought the safest assets - Treasury Bonds.

You can read more here https://www.stlouisfed.org/on-the-economy/2022/january/have-fed-asset-purchases-reshaped-bank-balance-sheets-part-1 about banks reaction to Fed capital injection.

Some of the bonds are held to maturity (and any capital gain/loss is not included on the income statement) by banks and other bonds are available for sale. Banks significantly increased their purchases of the Treasury bonds as the Fed expanded the money supply.

For the securities available for sale, the realized capital gain/loss is recorded into balance sheet but banks must sale them to raise capital. These securities available for sales have huge unrealized loss in 2022, because the bond prices fell and interest rates increased.

Most important two things will affect banks performance

Deposit Withdrawals. It’s another major concern for banks because, from December 2022, deposits started to decline with a 2.5% rate, largest percent from 1970. Clients are closing deposits at these huge rates because they need to cover the cost of living which is affected by inflation. This trend will accelerate as the Fed continues to increase short term interest rates. When deposit will deplete, banks will face huge losses because they need to sell securities with huge losses. Other scenario is that the banks might have to increase the interest rates on savings accounts which would affect the overall profitability.

Bad Loans will be also a major reason to worry. Given the huge rate increase on car loans, mortgages and commercial loans, it’s reasonable to have an increase in the defaults. This scenario it’s the 1929 great depression and it’s interesting how the Fed will face this. The Fed can simply lower the interest rates and push the bond prices higher but also the Fed it’s forced to fight inflation until reaches 2% to keep the monetary policy tight.

We recommend to close positions into financial sector and to invest into Gold until market sentiment will improve. Gold was one of the very few bright spots in a dismal 2022, ending the year essentially flat, and I expect its performance to remain strong in the year ahead. We have record retail demand (check here https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2022) and demand for Gold ETF it’s at highest level.

We are headed into a recession because:

• Money supply is falling. There is an old school monetary theory that asserts a decline in the money supply actually causes a recession (GDP=M2 x Velocity).
• The yield curve is inverted and the 10-year interest rate minus the 2-year interest rate is a negative 0.81%.
• Consumer Sentiment Is rising, but remains very low.
• Unemployment rate is starting to increase before recessions.

In the next article we will discuss how to hedge against macro-economic downturn that we are awaiting and why Gold it’s the best instrument.

View Article with Comments

Nonfarm payroll jobs rose by 517,000 that  is much higher than expected, DXY is up with over 1% also VIX and SP500 are lower with 1%. Previous month was revised higher with 72000 new jobs and that was an important factor for this evolution. The 600,000 job gains is remarkable especially given all the job cut announcements from the IT sector. That’s the biggest one-month job gain since February 2022. The gains were led in leisure and hospitality with 128,000 new jobs in the current month. Unemployment is just below pre-Covid19 levels. The work week jumped to 34.7 from 34.4, matching the highest since December 2021.

That said we will have a stronger dollar in this quarter, instead of one more hike from FED, higher for longer for FED is in itself a continued form of QT (monetary tightening). I’m impressed how stock markets ignore this signal, Also productivity literally plunged in January because many parts of the economy are contracting (housing & manufacturing). Future Q1 GDP will most likely be negative and profit margins will continue to contract. AMZN APPLE & MSFT have one of the worst earning results; this trend will continue with other stocks.

We think these prices are good to close some winning positions

View Article with Comments

Trading is one of the most difficult jobs ever because you need to constantly adapt to unforeseeable external factors that affect your initial judgement without emotional attachment and it’s also the only job where you can lose money while working.

The year 2022 taught us an invaluable lesson: “invest while adopting an active portfolio management”. Old school investing rules like “Buy & Hold forever” or “Mix portfolio with 60% Stocks & 40% Bonds” are now deprecated and who followed them has now an insurmountable lose that will take years to recover to its initial values. I’m advocating to allocate the assets to certain economic sectors that will work in the near future.

This year was the case of Energy, Commodities & Consumer samples sectors, also REITs in the first half of the year. In the last two years, the investors had switched from Growth to Value & Dividend Stocks.

Our main target is to outperform the best funds that have a 60% to 80% allocation of assets in Stocks and, if it’s possible, the S&P500.

These funds are:

• FBALX Fidelity® Balanced Fund with 29.5% decline in unit fund year to date
• VBIAX Vanguard Balanced Index Fund with 18.3% decline in unit fund year to date
• FFFEX Fidelity Freedom® 2030 Fund with 22.3% decline in unit fund year to date
• VWELX Vanguard Wellington™ Fund with 20% decline in unit fund year to date
• RBAIX T. Rowe Price Balanced Fund with 19% decline in unit fund year to date

The funds above are the best US funds according to Money US News.

Instead of negative -1,8% yield performance, our balanced portfolio is outperforming the S&P and the funds mentioned above, also is well positioned if the market recovers, and also has an active hedge against future market drops. Just take a look on the Performance & Allocation Graphs below, screen captures from our broker IBKR (Interactive Broker) account.

On the graph, Others (orange) are funds in Precious Metals and Commodity.

Two major macroeconomic triggers forced us to adapt our investing strategy this year: the global energy crisis due to the Ukraine – Russia War and the Fed aggressive interest rate hiking followed by other Central Banks. We maintain a strong 💪 position into Precious Metals and Commodities Stocks & Funds but we are ready to adapt if the Fed changes its policy. The buy & hold strategy worked two decades ago until now because of the ultra-low Fed policy and the cheap money.

What to expect from 2023 Markets

2023 is going to be a challenging year and will require a solid analysis, a fast adaptive strategy, and a lot of patience. Volatility will grow and we will have lots of ups & downs in all market sectors. Investing in risky assets during such times is not pleasant.

1) Stock Market Evolution in 2023

It’s difficult to say how stock market will evolve in the next year because we have positive and also negatives factors that both can influence markets in 2023.

Because I’m a positive person, I will start with the positive catalysts:

• The November CPI index finally signalled that will start to peak decline in inflation that the markets were so eagerly awaiting. The Fed, despite the rate rises in 2022, should sometime in the second quarter begin to set the exit point of their very aggressive monetary policy. The Fed raised rates to 4.5% in December, and the so-called famous "pivot," should come between 5% and 5.5%. That was the reason for the market recovery in December.
• Ending of the Ukraine – Russia War will have a positive effect on stock markets.
• China ending 0 Covid Policy announced by leader XI JINPING will have strong 💪 effects on international stock markets but most on the Asian Markets.
• Widespread decline in major asset classes.
• While maintained, the current net spending by the US Government will have a positive effect (EV Markets, Green Energy Act).
• Also, the Fed high rate will have a positive effect on the banking system socks.

On the other hand, the negative catalysts are in greater number:

• Corporate earnings are the main source of risk for stocks. We expect lower earnings because of the inflationary environment.
• Corporate Profit Margins will drop next year because right now we are at 👆 its highest levels. Corporate profit margins sit at their most elevated level in the last 70 years and this must be changed because consumers will stop spending sooner than later.
• Treasury yield curves remain deeply inverted worldwide and that is one of the most important indicators that bottom is not in the cards for 2023.
• Equity Exposure it’s still at highest level compared to previous recessions; we expect another 20% drawdown to have optimal level to enter the market.
• All Professional Economic Forecasters are pointing to recession into 2023:
  • Philadelphia Fed Survey of Professional Forecasters pointing 46.5 % to recession: https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q4-2022
  • WSJ Economic Forecasting Survey - 65% of voters see recession: https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q4-2022
  • Bloomberg Monthly Survey of Economists says 98% recession only 2% view a soft landing: https://www.bloomberg.com/news/articles/2022-11-23/fed-staff-saw-odds-of-us-recession-in-next-year-as-about-50-50?sref=38CcBIjZ&leadSource=uverify%20wall
  • Corporate Executives: Expectations of Recession are at the highest levels among KMPG Seniors and Bank of America Analysts
• Supply shortages and supply chain disruptions from government Covid-19 policies can’t be solved by the Fed and will have a real impact on inflation. These issues need more ⌚ time to be solved.

Successful investing is a marathon, not a sprint. I believe in a well-diversified portfolio in different sectors and we should also consider diversification within those sectors. I look for value, trends and under known/owned stocks; my advices to 2023 allocation of stocks are:

1. Value will continue to outperform Growth
2. Small caps will outperform large caps
3. Emerging Markets will outperform US markets
4. Precious metals & Commodities will outperform Stocks

2) Commodities Markets

Coal and Gas markets were poised with strong gains after a global energy crisis triggered by the Russia – Ukraine War, while tighter supplies expected in 2023 could fuel more gains. If Ukraine will win the war against Russia, and Russia will also lose the Crimea, then we have a smaller possibility that Russians will start to pump oil & gas again. This scenario has a low probability of approx. 10% and seems unlikely to happen because a change of the Russia regime is needed. Much more likely to happen is that we’ll have a frozen conflict with military advantage of the Ukrainian side and without a political regime change in Russia. From this point of view, we are positive on energy market with 60% of confidence. We don’t consider a larger percent of confidence because of the new China Covid-19 outbreak that will pose a serious threat to growth.

Our view is bolted by Goldman Sachs in their last memo:

"Despite the recent price declines, commodities will still likely finish the year as the best performing asset class. From a fundamental perspective, the setup for most commodities next year is more bullish than it has been at any point since we first highlighted the supercycle in October 2020."

Price of Food will soar because the invasion reduced supply from the key grain exporter Ukraine to a global market already driven higher by adverse weather and COVID-19 related restrictions. Corn and soybeans hit a decade high-prices climbed to an all-time record.

3) Precious Metals Markets

We are positive on gold markets because of the following factors:

• Further weakening of the dollar as inflation recedes its positive for Gold
• Geopolitical conflicts are also a good catalyst for Gold
• Economic growth in China, after two years and half of lockdown, next year will improve Gold
• Further weakening of the dollar as inflation recedes would provide support for Gold

You can read more in our previous articles https://topfxinvest.com/blog/markets-are-too-optimistic-about-the-fed-slow-pace-of-rate-hike

Silver will have also a very good evolution of price if the soft landing of markets and industrial sector will start to grow.

Gold & Silver are the ultimate ways to preserves value right now.

This article highlights our view for 2023 Market evolution and we want to wish you a profitable New Year in good health and working force.

For the year 2023 we plan to introduce a Stock Recommendation Service for investors and other facilities on our website.

To your success!
TopFxInvest Team

View Article with Comments

Yesterday FED hiked rates by the expected 50 basis points to 4.50%, but surprised by hiking also the terminal rate to 5.1% at their last dot plot in September. They also raised the inflation forecast for the end of 2023 to 3.1% from 2.8% and the core PCE to 3.5% from 3.1%. They don’t see inflation moving toward the 2% target until 2025.That was extremely bearish for Stocks, S&P lost from +1,2% to -0.6% on market close, yesterday was an important sentiment change.

What to expect from this point?

U.S. stocks were higher last week, having rallied 15% from October lows. U.S. Treasury yields fell, causing the yield curve to invert by the most since the early 1980s. I don’t think stocks are fully pricing in the recession we see from the FED over tightening policy. The FED will eventually stop its rate hikes next year, but we’re not expecting large & successive rate cuts that the market is pricing in.

Economic activity is continuing to slow in the U.S. & Euro Zone, according to the flash Purchasing Managers’ Index for November.

EURO ZONE PMI

US PMI

In the U.S., services activity has been contracting for some time, but manufacturing also contracted last month for the first time. Readings for manufacturing are at the same levels with readings during recessions in 2009 & 1991, we’ve had a fifth month of factory activity decline in a row.

It’s evident that rate hikes from major central banks, especially FED it’s a major catalyst to lowering economic activity but the size of the damage will depend on how much it will hike in 2023. We expect that the FED will stop hiking at the beginning of 2023 but will not curb inflation to 2%. In the next year, we’ll register persistent above the target inflation and lower economic activities. Major spending shifts and production constraints are driving inflation higher. We don’t expect that the FED will start to lower rates next year.

Greater Volatility it’s our main expectation next year because production constraints triggered by the pandemic (China Lock-downs) and the war in Ukraine are pressuring the economy and inflation. It's a higher risk to own stocks and bonds investors need to have short time frames between market cycles.

It will be difficult to fight with inflation for FED because of the aging population and bad demographics in the US.

Why We are Positive on Gold?

Because Gold it’s the best way to preserve value and right now it’s started to climb higher from 1600 to 1800. Gold it’s the ultimate way to hedge against these complicated macroeconomic environments. Traditionally 40-60 stock/bonds portfolios allocation is not recommended because we have a direct correlation between stocks and bonds.

Economic consensus is for weaker growth, small recession (soft landing according to Powell) and ending rate hike cycle. How does this economic outlook influence Gold?

• Further weakening of the dollar as inflation recedes it’s positive for Gold
• Geopolitical conflicts are good catalyst for Gold
• Economic growth in China, after two years and half of lockdown, next year will improve Gold
• Further weakening of the dollar as inflation recedes would provide support for Gold

Downside risks also exist for Gold via a soft landing scenario, where business confidence is restored and spending rebounds. Risk assets would likely benefit and bond yields remain high – a challenging environment for Gold.

Gold Stock Miners ETF (GDX) already bounced and offers leveraged exposure conservative investors could try our ETF with Gold backed (ZKB GOLD & UBS ETF GOLD). Read more in article Why to invest in Gold and how to store it from 26 July.

One of our best bet stock last month was IAUX i-80 Gold Corp with 35% upside because of incredible result from Ruby Hill Nevada Project.

Our worst performer was SHWZ Medicine Man Technologies with -5% but we are still positive about this company. 

To your future success!

View Article with Comments

Societe Generale Research expects a choppy price action in the near-term:

"Thanksgiving and the World Cup are removing both liquidity and energy from markets this week. In FX, Tuesday is the mirror image of Monday, the Dollar falling against all the other G10 currencies today, having gone up against all of them yesterday. Overall, the dollar’s turning, equity markets are trying to find a base, even if that’s temporary, and bond yields overall are close to their peaks, if not already there," SocGen notes.

"The huge elephant in the room – that a prolonged European gas shortage slows growth and raises inflation far more in Europe than it does in other areas (particularly the US), is just one reason why the euro’s revival (and the dollar’s turn lower) won’t be in a straight line. But we’ll take the positive of an improving balance of payment as what it is – good news at the margin," SocGen adds. 

View Article with Comments

Last week Bitcoin lost over 20% in two days only, from 21000 to 15700. Other broader crypto markets were also sold off heavily: Ethereum dropped 15% touching 1330$, also Dogecoin, Cardano, Ripple which lost double digit percent. FTX’s native token, plummeted about 75% last week to record lows, as the crypto exchange faced a bank run amid increasing doubts over its finances. Binance CEO Changpeng Zhao said that the world’s largest crypto exchange signed a deal to buy FTX operations outside the U.S, only a few hours after FTX suspended client withdrawals.

FTX’s bankruptcy is the most important crash this year, because of the growing pressure from rising interest rates. The exchange follows of Celsius and Voyager Digital in suspending withdrawals due to a severe liquidity crunch.

Crypto market capitalization is situated now below 1Trilion$, from 3Trilion$ two years ago.

Why I don’t like to trade Bitcoin or Crypto right now instead of lower valuation?

• The economic situation in the world continues to deteriorate due to the rising inflation, which involve an increase in the cost of mining equipment.
• China economic growth, which is the second largest bitcoin mining country, is at multi-year low levels. As a result, this will lead to an accelerated decline in investment interest in high-risk assets, which include also cryptocurrencies.
• Competition among miners is at multi-year high. Just check the chart of Total Hash rate (Th/s) below compared to BTC

  

• Mining Hash rate is a key security metric. The more hashing (computing) power in the network, the greater its security and its overall resistance to attack. Although Bitcoin’s exact hashing power is unknown, it is possible to estimate it from the number of blocks being mined and the current block difficulty.
• Mining Pulse (monitor activity of miners), the most important metric to predict the price of Bitcoin, is at record low levels which adds a lot of pressure for block chain stocks like RIOT or HIVE.
• FED Interest Hike is a major negative catalyst to the price of Bitcoin and the situation will not change until the end of rate hike cycle. Maybe at the end of 2023 we will see the prices over 30K.
• Bitcoin capitalization is too low, is under 50% from Apple Stock right now.
• Volatility is too high for my risk appetite. High Leverage need a lot of money to trade 5 to 10 contracts to make a sound money management strategy. For small Investors, the minimum capital is 100K to trade 5 Contracts.

After the bankruptcy of FTX, many investors moved to Gold that touched to 1776 in one day, right now nobody can claim that BTC is Gold, BTC is nothing. I will start to invest in Bitcoin when all the central banks and large commercial banks will put their money into BTC. I really appreciate Block Chain technology because it will revolution many economic sectors like banking, medicine, auto but this is not enough to put your money into BTC. Maybe BTC was developed to experiment a new form of money in society and we will not be surprised to find that, in the future, FED will adopt a new money standard.

Just check Powel statement below in January:

"We look forward to engaging with the public & paper not intended to signal it will make any imminent decision about the appropriateness of issuing CBDC"

...and read our article from 21 January: Russia will ban Bitcoin & FED will launch his own Crypto at https://topfxinvest.com/blog/bitcoin-crash-russia-ban

View Article with Comments

The US dollar hit fresh lows during Powell's conference but reversed when he said that “the ultimate level of rates will be higher” than previously anticipated. That means the +5% rate is back on the table. The statement “We have a ways to go on rates” probably most important statement from speech  changed market sentiment, stocks shifted to downside and USD was higher in the day.

Below most important statements from Powell

• We're saying we will hike to a level that's sufficiently restrictive to tame inflation
• The ultimate top is 'very uncertain' but CPI and labor data suggests to me it will be higher than previously thought
• The time to slow the pace of hikes could be at the next meeting or the one after that. It will be discussed at the next meeting
• I don't think we've overtightened
• We had a discussion at this meeting about slowing rate hikes
• Long term inflation expectations have moved back down
• We don't have a lot of data on how quickly rate hikes hit an economy in a modern economy
• If we were to over-tighten, we could use our tools to support the economy
• It is very premature to think about pausing
• "We have a ways to go" on rates

Read all statement here.

Markets saw 50 basis points in December vs. 75. They could see the finish line for the tightening cycle after two Feed Meetings.

In conclusion inflation is not dead & employment remains strong that means we will not see a policy pivot point next two FED sessions. Negative for stocks positive for the Dollar

Read more about a pivot point.

View Article with Comments

The Good

Stimulus and a looser monetary policy help China to have a solid COVID-19 recovery with moderate inflation, much lower than the European and US nations. China's interest rate is on a long-term downtrend, which could create attractive opportunities for fixed-income investors.

China markets have extremely low valuations, just think that Hang Seng lost more than 50% from all time high, and its price is similar with the 1997 levels.

Valuations are attractive and they are poised for a rebound if China’s growth recovers.

In a Twitter post, the hedge fund manager Michael Burry said:

“The Hang Seng recently hit 1997 levels. 25 years. Yet GDP multiplied 18 times during that time. 1997 valuations were 20 Earnings, 10x EV/Sales, 3x Tangible book. Now 7/1/1.”

Most of the global investors are underexposed to China, while China's communist party makes efforts to access foreign capital markets. The Chinese economy represents approximately 18% of the global GDP, but China A-share market only comprises 1% of the global MSCI index.

China’s economy is green energy-efficient oriented.

Efforts in seeking to achieve carbon neutrality and energy reform have the potential to create additional investment opportunities, given China's leading position in wind and solar components and materials. China is a global leader in the renewable power industry and has established a clear policy commitment in support of climate transition and the protection of natural capital.

China is on track to meet its 33% electricity consumption target from renewables by 2025 and could comfortably exceed it amid ongoing efforts to debottleneck the power grid to accommodate more renewables, analysts and clean energy project developers said.

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/energy-transition/092322-china-could-exceed-renewables-generation-target-of-33-by-2025

The Ugly Part

97% of Chinese provinces are spending more than they are receiving back in tax revenue.

The Chinese real estate market is in collapse. Real Estate Market was a major source of revenue for government few years ago. Land sale revenues are down 29% relative to last year while roughly 7.1 billion square feet of housing has been sold this year, the lowest amount since 2015.

China Budget freefall. Just check below the chart of Budget balance in relation with GDP.

Regarding the consequences, companies are fined for nonsense and illusive reasons because the China government look for ways to create cash flow through taxes and fines at the civilian level.

A vegetable vendor was fined 66,000 (9538 Euro)Yuan for selling subpar celery.

Source:

http://global.chinadaily.com.cn/a/202208/30/WS630d561da310fd2b29e74de0.html

The Bad

Economic Growth for 2022 is revised down from 5.3% to 3.5%.

Taiwan Tensions with the US. War between Russia and Ukraine it’s catalyst for Chinese Communist party to invade Taiwan and that is a major concern for investors. Government bet that it will be difficult for US to economically sustain two fronts. Putin met with Xi Jinping multiple times before war with Ukraine. I personally don’t think China will invade Taiwan because the risk it’s simply too high for China.

Trade tensions & restrictions: The trade tensions and the tech war has expanded to semiconductors, as the US government imposed hard export restrictions on US chip technology.

Tech & Internet Collapse. All Chinese giant tech companies suffer from strong regulatory climate and difficult economically context.

Entrepreneurship and freedom of action for the technology market helped giants like Alibaba, Tencent or Baidu become what they are today, but last year’s climate was changed because of the US sanctions & government intervention.

Conclusion: Is China a buy?

Investment in China is very risky but is coming with huge opportunities, and we prefer small allocation of assets to Hang Seng and preferably just take high convictions stock like DQ (Daqo Energy).

View Article with Comments

We think today that Fed and Mr. Powell will search sooner rather than later for a pivot point policy to change things because we already have a higher restrictive economic environment. We should remember that, when Fed suggested last time in 2018 that “future course of policy was predetermined on autopilot”, the stocks collapsed and Fed backtracked. Now they are trying right to introduce “data depending” on their speech, just check what they have said on Sept 30:

“Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target. For these reasons, we are committed to avoiding pulling back prematurely. Fed will proceed in a data-dependent manner.”

Fed will keep hiking until something will break up. Just check the Bank of England (BOE) intervention because of illiquidity on gilt markets, also the Bank of Japan which have announced their first intervention to support Yen against a stronger Dollar. These interventions calmed down the market but nothing is done to solve the major fundamental issues.

Just check the chart below for Pound ADR (Average Daily Range) of 500 pips. This is not a common sense movement.

But when will we see an inflection point for Fed?!

It’s all about the last Jobs Report which shows that is much stronger than expected, with a 263,000 monthly job gain while the Unemployment Rate had a major drop to 3.5% versus a consensus forecast of 3.7%.

Average Hourly Earnings is at the lowest point since December 2021.  Stock market Futures are decreasing and bond yields are rising in the wake of a stronger than expected NFP. Inflation expectations have been on the retreat, but Mr. Powell still needs a lower job report next month to start change the monetary policy.

If we get a hot CPI tomorrow, while considering an improving job report in November, it could mean that we can’t expect a 125-bps worth of Fed hiking starting now, until the end of the year, but a 150-bps hike on December 2022. This scenario will be very bearish for S&P with another minimum of 300 points down from here.

If we will see a lower Job Report in November and December, therefore we could expect a stronger S&P from here.

Which Sectors Are Still Performing Better than S&P and What Are Our Exposure Today?

I don’t want to dig much further on this article.

We like the Energy Sector and we still have some good stocks like: CWEN, PIF, SU, VLO, TGA. Energy sector is the only branch on green this year. I think it’s too late to take new positions on energy right now, and if we see good news about the war in Ukraine, we will close some of our positions. Clean energy solutions will not solve this crisis, but it will be a part of the longer-term solution for improving the energy independence.

We have a great exposure on precious metals Silver & Gold, meaning 30% from our Portfolio. I’m still optimistic about Gold and I recommend to buy it after Fed will start changing its policy. Gold will be the first instrument that will start to grow. Gold registers a minus 8 percent year to date, but outperformed S&P with over 15 percent. We bought Gold between 1700 and 1800 and we expect a target price of 2000-2200 in the next year.

We are very bullish on Uranium, Lithium and Silicon because of EV market catalyst. We bought CYDVF (Cypress Development Corp), SQM (Sociedad Química y Minera de Chile S.A.), and bought again DQ (Daqo Energy).

The Financial sector it’s also one of our bets and will outperform S&P 500 because of the Rate Hike. Financial is in red year to date but emergent markets will outperform the US financial sector. We acquired Banco do Brasil (BDORY) because of a strong balance sheet and a good perspective on growth.

We have few opportunities to follow in a bear market and for us it’s an option to be exposed with 30% on cash until things will change from the FED side, maybe in the end of the first quarter next year it will be good time to acquire risk assets. What is your opinion regarding Stocks? Looking forward to hear your opinions in the comment section below.

View Article with Comments

"The UK rate market is expecting the BoE to deliver a larger 125bps or 150bps hike at their next policy meeting on 3rd November, and then to keep raising rates to a peak next year of closer to 5.75% which would be around 100bps higher than expected for the Fed. At the same time, the pound is still vulnerable to the ongoing tightening in global financial conditions given the UK runs a sizeable current account deficit. The ONS revealed at the end of last week that the UK’s underlying current account deficit when one strips out precious metals averaged around 5.7% of GDP during the first half of this year," MUFG notes.

"In these circumstances, we are happy to fade the current rebound and continue to look for cable to head lower again heading into year-end," MUFG adds.

View Article with Comments

Fundamental it's expected rate hike in Switzerland and persistent risk-Off sentiment it's a good framework to take a short position

Comercial Banks Positions

-> Credit Suisse discusses its expectations for next week's policy SNB September policy meeting. "For the upcoming SNB meeting on Sep 22, we see a risk that the central bank might surprise the market with a larger-than-expected interest rate hike. SNB President Jordan's speech at Jackson Hole struck a hawkish tone as he voiced concerns about long-term inflation upside risks," CS notes. "Therefore, we stick with our 0.9400 EURCHF target and would consider our view incorrect at levels above 1.0060,"

->Danske Research discusses its expectations for next week's SNB policy meeting. "EUR/CHF moved sharply lower yesterday afternoon, briefly dropping below 0.9550, reaching the lowest level since the removal of the floor in January 2015. We continue to expect the SNB to follow the ECB in terms of rate hikes to curb underlying inflation pressures," Danske notes. "We expect SNB to hike rates by 75bp on Thursday 22 September followed by a 50bp hike in December. Markets are currently pricing 58 and we acknowledge that it is a close call between 50bp and 75bp. In our base case, we expect EUR/CHF to move lower on announcement," Danske adds.

->Barclays comments "We expect the SNB to deliver a 100bp hike, more than the consensus forecast (50bp) and market pricing (75bp). President Jordan has been hawkish. His Jackson Hole speech outlined reasons for structural risks to a higher inflation . He made further hawkish comments after the ECB meeting. We remain short EURCHF (target 0.95) as the SNB out-hawks the ECB," Barclays added 3 minutes ago.

Also technically we just have a breakout with growing bearish volumes SL 0.965 TP 0.933

View Article with Comments

• Fortinet's GAAP profit margins are higher than peers .
• Margins remain in line with the prior year.
• Fortinet reported a good quarter that saw revenue grow 29% and operating margin around 25%.
• Technically  we have growing volumes Good Support level 

View Article with Comments

Energy sector it’s the best performing market sector in 2022 instead of the latest evolution of Oil. Evolution of energy sector its close correlated with war between Russia & Ukraine. But we need to recap last week’s events:

Russia shut down its Nord Stream 1 natural gas pipeline last week for “maintenance” and will thereby provide Europe with a preview of how will looks winter this year. Instead of opening terminal in Estonia from Norway and new delivery from Spain, or imports from Canada & Qatar Europe can’t replace completely Russian energy and Europeans will have higher bills for energy-related products. Its expected price caps but this will result in more shortage of Gas & Oil.

There is a growing possibility in the case of a regime change in Russia that could disrupt the crude oil and natural gas markets. We support this idea because of latest development of war, Ukrainian soldiers regain 6000 KM². Also, six of Putin’s allies have been shot or blown up, so Putin’s inner circle is becoming increasingly isolated. “Special operation” support is lowering because of Europe sanctions from 85% to 68% according to Levada.ru.

In the event that there is a ceasefire between Russia and Ukraine, post-Putin, the stock market could explode 40% to the upside. However, as long as Putin remains in power, the Ukrainian war is expected to persist in a long, and we will have high price of energy. We reduce our profitable positions this week in anticipation of pervious scenario.

After last days of Ukrainian Army advance we can see already a turning point of conflict. Just take a look of yesterday map:

We closed some energy positions like Alvopetro (Alvof) with +40% and Petroleo Brasil (PBA) +30% opened in March because we had important gains from price appreciation and large dividends, with higher risk of president Jair Bolsonaro intervention in companies’ administration.

We anticipate Corporate Earnings to decline except Energy. We remain skeptical that a new Iranian nuclear deal will be announced in the upcoming weeks because this will affect Bidden administration and relationship between USA and Israel.

What About US Inflation

U.S. inflation may have peaked, but at high levels thus forcing the Fed to remain restrictive. Strong dollar, high mortgage rates, lower commodity prices, lower demand, and reduced supply chain pressures are likely to help reduce inflation over the next year. The U.S. dollar should stabilize over the medium-term amid hawkishness from other central banks and slowing economic data this is positive for growth stocks in short term. Right now, CPI was published and is above expected values but market overreacted this bad news. Today’s CPI report wasn’t a game changer. A “better balance” in the labor market would be a game changer for CPI next months because higher vacancies-to-unemployment ratio fuels inflation.

Just read Societe Generale opinion below:

Societe Generale Research discusses the USD outlook and sees the currency rally close to its peak. "Aggressive fiscal reaction to higher energy prices encourages our belief that while the euro and pound won’t stage significant rallies until the we’re closer to the end of the energy crisis (and the end of the war in Ukraine), the dollar’s peak isn’t very far away," SocGen notes. "A period of EUR/USD and GBP/USD trading in low ranges is more likely than fresh 10% fall from here and it’s much more likely the next 10% move in USD/JPY is down, rather than up, too," SocGen adds.

We can see at the end of the year decline in USD and we acquired new positions on Gold, Silver and Banks European Index (EXX1), also new positions in Citi (C) Societe Generale Bank (GLE).

Right now, we have a late cycle development and we prefer equities instead of fixed income like bonds. Not all equities are good to own right now, we select just strong companies with large cash flow from sectors like Healthcare, Consumer Samples and Utilities, Renewable Energy. We favor commodity and companies that mine uranium and lithium for green Energy Industry.

Good green Companies:

Best Lithium Producers

• Albemarle Corporation (NYSE:ALB:US)
• Jiangxi Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460)
• Lithium America Corp (LAC)
• Sociedad Quimica y Minera S.A. (NYSE:SQM:US)
• Allkem (ASX:AKE, OTC Pink:OROCF)

Some of the problems that markets will have to face in the near future:

• Increased food and energy prices are causing acute trade imbalances and civil disorder in the most vulnerable countries. Europe will enter to recession.
• China, COVID pandemic continues, massively affecting its economy. Simultaneously, the Chinese property complex – key to Chinese economic growth – is now under dire stress.
• Greatest fiscal tightening in history as governments withdraw COVID stimulus will impact companies’ margins and profitability.
• Population decline will pose threats to economic growths. No single G7 country’s is producing new born at replacement rate.
• Climate problems, higher temperatures, on all continents will have a major impact for agriculture next years.

We see now all vectors for an epic super-bubble because all of the assets, stocks, bonds, houses are overvalued. Right now we experience first stages with inflation and interest’s rates surge but will have sooner than later lower corporate margins and unemployment.

View Article with Comments

US July CPI +8.5% y/y vs +8.7% expected it's the first good sign about inflation

But let's analyze data below:

• CPI energy -4.6% vs +7.5% prior
• Gasoline -7.7% vs +11.2% prior
• New vehicles +0.6% vs +0.7% prior
• Used vehicles -0.4% vs +1.6% m/m prior
• Owners' equivalent rent +0.6% m/m vs +0.6% prior
• Food +1.1% vs +1.0% prior
• Real weekly earnings +0.5% vs -1.0% m/m prior

Stocks   are up with large gains SPX over 2.13% and Nasdaq NDQ over 3% Dollar down DXY over 2%. Instead of  this small bounce in market  Sentiment we don't think will last more than few days.

Goldman Sachs not expect inflation to drop too far from here!

Inflation will not go too much lower because:

• The price of cars (main component of core CPI) will stay high for months because production problems and distribution chains problems
• Retailer excess inventory will not have any impact on prices. GS estimates currently $20 bn—this translates to 3% of annual retail spending and 0.5% of total core goods spending. That only translate to 0.1% of downward pressure on inflation  
• We do, however, continue to expect the strong dollar and easing supply-chain constraints to weigh on import prices later this year, and in turn on consumer goods prices by the first half of 2023
• Consumers have made changes in their shopping behaviors, like switching to cheaper brands or pivoting to dollar stores to get their essentials.
• Covid Cases are surging in China that will affect distribution Chains

On others investment front investors must seek exposure to green Energy and Electric Vehicles (EV) because the Senate's deal targets clean energy and electric vehicles. The Senate has passed the Inflation Reduction Act; amid its multifaceted, approximately $370b of energy-related spending, both the clean energy theme and the electric vehicle theme are key components of the bill and the primary focuses of this commentary.

Electric vehicles and the broader EV value chain could experience accelerated demand from tax credits, government EV purchases, loans and grants.

Symbols like TSLA NIO RIVN QS BLNK HYILN VLDR Plug HASI NEEE will benefits from this law

View Article with Comments

After big rates hike by FED and ECB, investors are hoping that in the following year, central banks will start to normalize rates, therefore Stock market show a bounce back (SPX is near 4.000).

We think it’s a short-lived bounce but a good opportunity for a Risk-Off trade. We see volatility ahead, after rate hikes, because central banks (FED & ECB) are captive to higher inflation. But inflation is caused by production constraints, wars - and rate rises don’t fix these. If inflation was caused by higher demand, than a rate hike, normally, will have a better outcome.

Getting inflation down to the magical number of 2% would mean recession without any doubt and first half year is showing us that GDP is crushed with a 1.6% contraction. Monetary policy is working with delays and the economy is just feeling the effects of one of the most aggressive hiking cycles in history. Stocks rallied 2-4% each of the last four times, the FED hiked interest rates only to fall in the following weeks. Stocks are still expensive and financial results are disappointing, but investors are thinking that this is the bottom, but we cannot embrace this idea. We will face ugly consequences because interest rates were kept too low for too long time (over a decade), central bankers are responsible for the fact that right now we have a bubble on each economy branch.

Mr. Powel must act in same way as Volcker did few decades ago in 1979 and hike until inflation will land to normal values. His last speech was a hint to more rate hikes.

Do you believe that we will face a soft landing as Powell said few weeks ago?

We believe that we will face a soft landing in the same way that inflation “was transitory” last year, according to Powell (just read our January 2022 article at: https://topfxinvest.com/blog/thoughts-about-the-2022-bear-market). Mr. Powell also opined that we aren’t in a recession, demonstrating again that the leader of the most powerful central bank in the world is the last person you would want to ask about the economy. Last week, economy suffered its second consecutive quarter of negative real growth and there is little reason to expect the third quarter will be any better.

Natixis Investments Managers see higher risks of a recession in the last survey. 64% said that recession is a distinct probability, and 24% said that recession it’s inevitable. Almost six in ten (58%) believe value will continue to outperform growth for at least a few more months, while nearly one-quarter (24%) think value will be on top for a few more years.

"The End of an Era"

Strategists see a world that has changed dramatically in the past six months. After a decade in which the easy money provided by quantitative easing, low rates, and low inflation propelled markets to positive gains in seven out of ten years, the world is moving on. This next normal is marked with greater volatility and greater uncertainty. The big question for most investors may well be: How long will it last?”

If you want to read more about the survey: https://www.im.natixis.com/us/markets/the-end-of-easy-money

Inflation is a brutal and merciless way of resolving structural debt & imbalances of corrupted governments. We see potentially multiple series of inflation & deflationary cycles within short time frames (six month & two years) that will cause huge volatility.

According to CNBC, inflation is a top problem in US.

Traditional investing style (60% stocks + 40% bonds) it’s not a solution today, because bond’s market is underperforming and stocks are crushed.

How to protect your portfolio during these times?!

We can protect from the financial storm that is arriving by choosing the best stocks & ETFs from few market segments that will perform in difficult times:

Commodities: since prices already dropped off and would be a good hedge against risk-off tone. Symbols: CRN, DCUSAS, WY

Carbon Emission: KRBN, CARB, GRN, NETZ

Consumer Staples Funds: WCOS, XLP, VDC, FSTA, YI 111, INC, IBA, IMB

Real Estate REIT: STOR, O, NNN, SRC, UBA, ID.UN, APR.UN

Precious METALS: ZGLDUS, ZSILUS

Low debt & Cash flow Green Energy Stocks

You must avoid at any price Growth Stocks & Crypto Markets.

View Article with Comments

The vote was unanimous because FOMC is “strongly committed to returning inflation to its 2 percent objective”. Spending and Productions have softened but job gains was robust recent months. Balance sheet reduction ongoing as planned.

Summary from Powel

• Inflation is much too high
• There is still additional upward pressure on inflation
• We're highly attentive to inflation risks
• We are looking for compelling evidence of inflation coming down
• Although prices for some commodities have turned down, earlier surge has boosted prices and inflation pressure
• Inflation has surprised to the upside in the past year so we will need to be nimble
• Will watch PCE and CPI but think PCE is the best measure of inflation
• We need to see inflation coming down
• Labor market is extremely tight
• Wage growth is elevated
• Business fixed investment looks to have declined in Q2
• We want to see demand running below potential for a sustained period
• The pace of hikes will continue to depend on incoming data and evolving outlook

You can read full statement here https://www.federalreserve.gov/newsevents/pressreleases/monetary20220727a1.htm

Some Good news: instead of inflation is Atlanta Fed GDPNow final Q2 reading -1.2% vs -1.6% prior.

IMF Cuts Growth forecast from 2022 & 2023 again.

Germany August Consumers Sentiment dropped to lowest levels -27.7 vs -27.4.

Germany Rethink Nuclear Power Exit https://www.ft.com/content/cc422ece-92b3-41fa-a05c-900270bfe824

View Article with Comments

Global growth fears are growing immensely this week and recession fears are at top levels, it seems that bust is coming shortly. According to our last market view, an economic hurricane is coming, and the last week economic outlook is worsening.

Just read some title news from Reuters:

“U.S. retailers tumble after Walmart cuts profit forecast … Walmart cut its forecast for full-year profit, saying it expects its adjusted earnings per share to drop as much as 13%”

“Logitech's quarterly profit slumps 38% as pandemic demand wanes … reported a 38% fall in first-quarter adjusted profit and cut its full-year 2023 outlook on Tuesday”

“some tech companies firing workers in an attempt to reduce costs: OneTrust fired 900 employees, Stitch Fix cuts 330 ID.me dismissed 330 according to CBSNews https://www.cbsnews.com/news/tech-companies-layoffs-stock-market-cryptocurrency/”

JP Morgan CEO Jamie Dimon is telling us that an economic hurricane is coming: “Things are doing fine. Everyone thinks the FED can handle this. That hurricane is right out there down the road, coming our way. We just don’t know if it's a minor one or Superstorm Sandy.”

Other macroeconomic vectors are pointing to a recession, below you will find just a couple of them:

• Credit default swaps have nearly doubled so far in 2022
• High yield bond market is pointing to a recession because spread between junk bonds and treasuries surge from 300 to 500 points in 2022

• US consumers Sentiment is pointing down to a level similar to levels of Great Recession

• Atlanta GDP is now pointing to an annualized real GDP growth of just 0% for the second quarter

In the past, the increase in the money supply and the low policy interests of FED resulted in a credit boost, while the increased interest rates at the present moment will force many contractors to abandon their projects.

We prefer keeping defensive stocks and, first of all, precious metals. Our portfolio is holding 40% from total assets in Gold & Silver.

Gold will rocket because of factors mentioned above, and 1710 it’s a good price to add to your portfolio.

How to store Gold Best and Safest way?

Because many of our readers asked how to store Gold, I’ll beat the horses on that subject.

The safest way to store Gold is to buy physical Gold and to store it on offshore companies like https://hardassetsalliance.com/. While being safest premium, it’s not too economically because prices are not cheap and it’s suitable for large long-term investor with over 500K. For small investors, the best way to invest in Gold is to buy GOLD ETF in safest jurisdictions like Switzerland and Singapore. Largest Gold ETF have some disadvantages that are not always easy to identify but, for the moment, we will show our requirements on how to choose the best GOLD ETF:

• It must be placed in the safest jurisdiction and in a safe location
• The Gold ETF must be 100% backed by physical Gold, and investors ultimately should own a share of the stored gold bullion
• The Gold ETF must have a decent size and liquidity
• Must have reasonably fees
• Must have low tracking errors with Gold market price

I have to mention that the most important factor is a safe jurisdictions because, in time of crisis, governments will impose Gold holding restrictions. Some governments have even previously confiscated Gold from citizens, just check these history facts:

• In 1933, the U.S. issued Executive Order 6102 requiring everyone living the U.S. to turn in gold coins, bullion and certificates.
• During World War II, the British Government ordered all citizens to sell their gold to the treasury.
• In Australia, Part IV of the Banking Act 1959 allowed for the government to seize private citizen’s gold for fiat currency. It has since been repealed.
• In Germany, as of the 1st of January of 2020, the limit to buy gold anonymously dropped from €10,000 to €2,000

You may be tempted to start owning Gold ETF with names like Invesco, Xetra, Gold Ishares Physical Gold, SPDR Gold Trust GLD with a low commission of 0.15% or 0.2% because these are big names on markets, but I don’t recommend them, as these ETFs are actually an obligation, or a debt note against a commodity.

Instead of having shares in a fund that directly owns the asset, such as gold, you essentially have a contract with a 3rd party Bank that guarantees your exposure to the asset. Generally, this should be a NO WAY TO INVEST IN GOLD because it would expose you to unnecessary counterparty or issuer risk.

We prefer to pay the doubled commissions to hold ETFs which own the physical bars of Gold and after a long time of research, I found that the only options are ZKB GOLD ETF and UBS GOLD ETF from Switzerland.

Just read the fund prospects below:

ZKB

The total expense ratio amounts to 0.40% p.a.. The ETF replicates the performance of the underlying index with a collateralised debt obligation which is backed by physical holdings of the precious metal. The ZKB Gold ETF A (CHF) is a very large ETF with 3,225m GBP assets under management. The ETF is older than 5 years and is domiciled in Switzerland.

UBS

The UBS ETF (CH) Gold (USD) A-dis invests in gold.

The total expense ratio is 0.23% pa ​​Index performance is tracked by a bearer bond backed by physical precious metal holdings. The UBS ETF (CH) Gold (USD) A-dis is a very large ETF with a fund volume of CHF 1,700 million. The ETF is more than 5 years old and set up in Switzerland.

Between ZKB and UBS, we prefer to invest with ZKB (Zürcher Kantonalbank) because is the largest cantonal bank and the fourth largest bank in Switzerland owned by the Canton of Zurich.

Thanks for reading, and please share your other options to own Gold on Facebook page or Comment section of the blog!

View Article with Comments

We analyzed the last week's performance on each asset class and found that the most resilient category from year to date is Energy, REITs and precious metals (instead of the last rally down of Gold). It’s difficult to find a place to park the money 💵 in this economic and financial outlook. According to Warren Buffet, in a recession environment everyone loses, but some of the people have a small loss and others have high loss.

Even traditional safe heavens offered little protection in the first half of 2022:

• Bonds have historically grown when stocks have plunged, but Treasuries and municipals Bonds sold off in the first six months with -7%, S&P500 Corporate Bond Index is down 15%
• S&P500 is 19% down today, Nasdaq100 with 28% in red, Down Jones 14,5 % in red
• Crypto Markets Bitcoin & Ethereum have lost over 70% from high
• Commodities without energy-related doctor Copper have lost 23% and Cotton 17%
• Precious metals are best performers today with only 3,8 % loss
• Few REITs that have contracts related to interest rates also performed very well: VICI +8.5%, O -3.5%, UBA -0.8%
• Dollar outperformed marked DXY with +12%

So how did we get here?

We get here because of the high Inflation, rising interest Rates, record Energy Prices, war in Ukraine, Covid 19 pandemic and FED easy money printing in this decade. Everything seems to be a bubble.

How long will it last?

Risk off mode will persist this year and also at the beginning of 2023. History of bear markets from '49 tells us that we can stay in the red between three months and 39 months.

How much will the markets drop from Here?

S&P has fallen from 30% to 60% in 13 bear markets. We are reasonable to accept a minimum of 10% draw down from here, but because of amplitudes of the factors that generate this financial cataclysm, we must see a much more loss in Equities. We must understand the psychology of markets and individuals to know how to act.

We think we are before of the Panic stage of the markets right now (see first image). What is your opinion on this current stage? Will appreciate your opinion on the TopfxInvest Facebook Page.

Many analysts that we consulted seem to indicate that a peak of inflation will determine a bottom for stocks. We don’t think that is a true scenario because of the magnitude of the factors that start this bear market. I would be extra cautious before making any big bets on stocks and I’m a big fan right now of high dividend stocks that are resilient to interest rates hikes.

How to act right now, do we have a place to invest?

We prefer to consolidate the Gold & Silver positions, also we started selling Energy & Commodities Stocks that outperformed the market (like Daco Energy DQ, CNQ). We think that Gold will rise after the FED will finish with rate hikes and the Dollar will lose some peace of growth. We also studied the history chart of EUR/USD and when the Dollar is on Parity with Euro, will have some correction on the Dollar Index.

Chuck Berry inspired this article with “No Particular Place to Go”

An interesting topic for a future article will be: How to identify fundamentals of a market bottom or how to store Gold in efficient & safe ways?

Thanks for reading, and I’m waiting your feedback for our articles on our Facebook Page.

View Article with Comments

Prospects of Recessions and GDP Growth

We estimate that there will be two quarters with negative growth for the next 15 months. Inflation will exceed wage gains and will reduce real spending. However, a few negative quarters are not enough to claim that we have a recession.

What stops us from announcing a recession is:

• The US strong labor market
• Remarkably stable retail spending
• Services sector that is surprisingly immune to interest rate changes.

JP Morgan says recession is not its base case, risky asset classes could recover:

• we do not see (a recession) as base case over the next 12 months
• In fact, we see global growth accelerating ... to 3.1% in the second half
• and inflation declining to 4.2%
• which would allow central banks to pivot and avoid producing an economic downturn

Prospects of Inflation

Powell will probably raise rates to 4%, a mere 300 basis point increase. Higher rates will be a more important matter to Wall Street, not to the Main Street. Inflation will fall back to 3%-4% once current shortage in energy and supply chains will be over. We estimated that inflation will curb in the beginning of 2023, all that is needed is prices to stop rising and an equilibrium between demand and offers.

History, indicates that long-term real rates ought to be in the neighborhood of the economy’s long-term real growth rate potential.

Stock Market Forecast

Regrettably, this long-term bull market is now over because interest rates will not fall in the short term and second, we will see lower earnings per share. The resulting decline in the earnings per share growth rate will shock markets. We will have a lot of companies with negative earnings growth surprises. Last decade companies have delighted investors with impressive earnings per share, but that scenario will not be repeated in the future. Investors must have a proactive investing style or to invest in instruments with large dividends. Passively investing style is dead, you can forget index style investing.

When we read our Reuters terminal last week, we were negatively surprised to see how food supply and princes affected the people of developing countries. Unfortunately, our prediction from last year has come true and we have a food crisis (just read article from November 2021 https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 )

Last Month we had protests in emergent countries.

Greece

Thousands of Greeks protested in Athens against the surge in energy and food prices. Greece's annual CPI Surged to 8.9% in March, hitting its highest level in 30 years.

Cyprus

Protesters throw the milk in presidential palace because of high prices and production issues.

Chile

Students rallied against the government because of high food prices demanding price control.

Tunisia

Basic food (Milk Eggs Poultry) prices were raised in May and were followed by large protests.

Argentina

Thousands of farmers protested in Buenos Aires against President Alberto Fernandez, because of policies to contain food prices. Farmers need to pay more for animal feed and to sell at a lower price.

Kenya

May 17 in Nairobi was held a demonstration against the government because of cost of living and high prices of basic products

Iran

2000 Pensioners protest peacefully in June against soaring living costs, according to Aljazeera and social media reports. The government raised prices of some basic goods such as cooking oil, floor and meat.

Peru

Peru ruling class sent an army in the streets to clear road blockades of activists. Protests were launched because of rising costs of food and fuel prices.

Indonesia

Indonesian farmers have rallied against palm oil export ban that caused a price drop of 75% on palm oil.

Guinea & Sudan

Protesters were killed by the armies according to Reuter’s reporters in May. Sudan Currency lost more than 30% last year and prices for fuel and food are growing at 20%.

View Article with Comments

The FOMC (Federal Open Market Committee) meeting consensus was for 50bp rate increase because of this week's worst CPI reading, but Fed hiked with 75bp, and market consensus agreed for other future rate increase this year, and also a 10% inflation which is on the cards right now. Markets are hit hard this week, a Risk-OFF tone was the main trading sentiment among traders.

How Dot Plot was changed:

• June 2022 shows the median rate at the end of 2022 at 3.4%, up from 1.9% in March 2022
• For 2023, the median Fed funds target rate is up to 3.8%, up from 2.8% in March 2022
• In 2024, the Fed projects a Fed funds target rate of 3.4%, down 40 basis points from the end of year 2023

10 to 1 votes for 75 bp hike and Powel opening statement “Inflation is much too high” reveal large consensus and fear from actual economic environment.

Jerome Powel other key statements from yesterday meeting:

• Consumption spending is strong
• Housing Market is slowing
• Tightening in financial conditions could continue to temper growth
• Growth in business fixed investment is softening
• Labor market is extremely tight
• Wage growth is elevated
• We'd been expecting to see signs of inflation at least flattening
• We're seeing inflationary forces everywhere
• We don't know what will happen with supply shocks and how long they will last
• Pace of hikes will depend on incoming data
• Does not expect 75 bps moves to be common. Either 50 or 75 bps seems most likely at the next meeting.

SP500 are at the worst levels for this year, and inflation is at the highest levels because of the Covid-19 outbreak and the war between Russia & Ukraine.

Beijing and Shanghai (China) are experiencing a "strongly explosive" COVID-19 outbreak right now and this will add fuel to the fire of the Recession. Even Chinese Communist Party Media disclose some information on this new Covid-19 wave (https://www.globaltimes.cn/page/202206/1267831.shtml) but you can read more unbiased opinion at Voanews: https://www.voanews.com/a/beijing-sees-explosive-covid-outbreak-shanghai-conducts-mass-testing-/6613499.html. Authorities ordered PCR testing for all residents in 15 of Shanghai's 16 districts this weekend, and five districts have restricted residents from leaving home during the testing period.

What about recession?

Goldman Sachs SP500 forecast SP500 to 3150 according to David Kostin only if the EPS estimate moves to $225.

Morgan Stanley is looking for a "tradeable low" in the SP500 suggesting price 3,400 because "growing evidence of slowing growth and the risk to earnings”.

Our Portfolio Recommendations

Regarding our Portfolio we added some Gold this week at the price 1815 and also ZIM stock instead of Economic tailwinds. We like ZIM because they have signed new charter agreements on eco-friendly vessels to expand its services. ZIM is extremely undervalued at PER 1.83 and also, it’s a company with low debts. Company has huge cash in bank accounts of 2.8 billion $ that is equivalent to 40$ per share price. We bought at 49$ and we have a target of 75$ per share, without taking into consideration the past dividends.

View Article with Comments