Economic Analysis & Financial Analysis | TOPFXinvest

Economic & Financial Analysis

Macroeconomic Forecasts & Protests across the Developing World

Macroeconomic Forecasts & Protests across the Developing World

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%.

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What are the Elites planning for the Future at Davos this year?

What are the Elites planning for the Future at Davos this year?

Few days ago, most influential people in the world (managers of Big Companies, top academics, leaders in main stream media, central bankers) are gathering to find paths to solve the issues on humanity crisis. Between 22 May and 26 May, Davos hosted World Economic Forum. Davos is an "invitation only" event for the "elite”. Davos it’s in essence a festivity of the ruling class. Here, the new macroeconomic trend will be set for this world, trend that will last for decades from now.

I’m not a big fan of conspiracies, but the discussions at Davos will become policies next years and we can check few strong examples:

  • “Zero interest rates policy”
  • “Mass people migration”
  • “The Abolition of Cash”
  • “Launching Electronic Currencies”

What is it about at Davos this year?

One of the main topics discussed was population migration between continents. Today, the main threat for the European Economies is the population decline, while the main issue for African continent is overpopulation & famine. Migrants coming to Europe today are not attracted by opportunities, like Golds Rush few centuries ago in US, but are attracted by: free medical services, free food for social cases, exceptional living expenses, Social Houses.

Food crisis that is coming in the next year because of the Russia conflicts with Ukraine, will determine a Mass Migration from Africa to Europe. Food shortage and how to solve this was the main topic discussed this year at Davos.

There was a massive surge of migrants to Europe in 2015. But that was just the beginning of what’s coming the next years. What we’re talking about here is the migration of millions of people of different languages, different races, different religions, different cultures, and different modes of living. Such a migration can only destroy the European culture and you can check the history back of what happened 1600 years ago in the Roman Empire, considering the migration of Germanic tribes.

A snapshot of food prices today, price are at all time high

corn futures price graph

I don’t want to beat the horses to much with people migration because other topics are also interesting, like MMT (Modern Monetary Theories). MMT means unlimited creation of paper cash to finance what governments want. This new modern economic theory must be implemented because Governments are bankrupted. Just check the US, UK, France, Spain balance sheets and debt to GDP ratio to understand how things are working now.

Countri list debt to gdp ratio

The Elite State (Davos participants) prefer to finance governments bail-out via inflation instead of imposing new taxes (it was the stock heaven in the last years).

For this reason, inflation is surging all around the Globe but they can hide this very well behind the conflict between Russia & Ukraine. Our countries economics problems are more profound than we think they are!

How to hedge against inflation?

Our options are:

  • Carbon Emissions Contracts
  • Precious Metals (good option right now)
  • Grains (too late)
  • REIT Stock’s
  • Energy Stocks (too late)
  • Other commodities like: Coffee, Cocoa, Sugar, Uranium

These days we find some options for stocks that are not in the sectors mentioned above and we want to bring you some examples here:

  • <DQ> DAQO NEW ENERGY CORP: Main producer of polysilicon to photovoltaic product manufactures in China. They have large clients in Europe, they also will open new factory in Mongolia, and the stock is extremely undervalued. 9 analysts revised their recommendations regarding this stock last month to upside.
  • <FSZ> Fiera Capital Corporation: The main investment Company in Canada that grow their AUM through acquisitions and offer 9% dividend yield.
  • <NRIM> Northrim BanCorp is the main bank in Alaska; we choose it because they have: low competition, 0 debts and Alaska will grow very much with the current Oil price.

Germany decision to stop Oil & Gas imports until the end of 2022 was in our opinion the main news at Davos and a BIG HIT to Russia. If Russia will not stop their “special operation” soon, we see this country evolving like the Nord Korea. India engagement to migrate on green energy is also a real big news that put a lot of pressure on China to change their policy also. India will change side to US-UK-EU alliance next years.

Job Market Evolution in years to come and how technology will change workers’ habits was also a good subject to meditate for the illuminated minds. Today, workers need to be more open to technologies, also work from home will be adopted by large companies. The main threat of productivity is the ability of workers to be self-organized, and discussions at Davos, was oriented on how to grow productivity in these new paradigm launched by COVID 19 disease.

Things are not going well and this was in agreement with all of the Davos participants, just to remind you some these week headlines:

  • UBS have cut their 2022 GDP forecast for China to 3% y/y, from 4.2%. Reminder, the official forecast out of China is for around 5.5%
  • JP Morgan downgrade China economic growth forecast, again. Project large contraction from -1.5% to -5.4%.
  • ECB President Lagarde has indicated July is likely lift off for rate hike
  • Fed's George says while inflation is clearly decelerating it could jump again

 

“With dedication to your freedom TopfxInvest”

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Economic Growth is slowing all around the globe and inflation will grow with a moderate pace

Economic Growth is slowing all around the globe and inflation will grow with a moderate pace

EU inflation is 6.1% and rate hike is mandatory. From the previously forecasted values of 3%, we have a deviation of 3% which is caused by multiple factors:

  • Russia & Ukraine conflict
  • Energy Price
  • Supply Chains disruption

Goldman Sachs also cut their US economic growth forecasts from 2.6% to 2.4% this weekend.

Slowdown in growth should help lower job openings, it is also likely to raise the unemployment rate a bit.

Blankfein former chief executive of Goldman Sachs and currently senior chairman of Goldman Sachs says "firms should be prepared for a recession this year" and also:

"We're certainly heading - it's certainly a very, very high risk factor. And there's - but, you know, there's a path. It's a narrow path. But I - I think the FED has very powerful tools. It's hard to finally tune them and it's hard to see the effects of them quickly enough to alter it."

https://www.cbsnews.com/news/lloyd-blankfein-face-the-nation-transcript-05-15-2022/

FITCH says that the global recovery is to slow down in 2022 and 2023. Policy interest rates are rising, and FITCH believes that this marks an end to an era of very low borrowing costs for governments.

Remarks from Powel has changed a lot from the last year when he considered that the inflation was transitory and some pain is needed.

“The question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control. The process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels.”

This week, CPI is lowering from 8.3% to 6% (Core CPI). This means that inflation will not decrease, it will slow the pace of growth, and the price of goods are not going to decline. The price of goods will grow with a moderate pace.

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Tomorrow FOMC Expectations from Commercial Banks & former FED official's

Tomorrow  FOMC Expectations from Commercial Banks & former FED official's

BoA (Bank of America) 
Perhaps the most interesting moment at the press conference will be his response to a question about whether a 75bp hike is on the table.

 

Barclay's 

"At this week's May FOMC meeting,we expect the Fed to lift the target range for the federal funds rate by 50bp to 0.75%-1.00%.May's hike has already been signaled to markets,with FOMC participants becoming increasingly receptive to front-loaded rate hikes amid resilient data on activity and intensified cost-push price pressures since the March meeting ... Given the broad parameters for balance sheet normalization laid out in the March meeting minutes,we expect the monthly run-off caps to ramp up from$35bn in June($20bn for treasuries,$15bn for agency MBS),to$65bn in July ($40bn/$25bn)and then to the maximum pace of$95bn/month from August.

 In the press conference,we expect much of the discussion to revolve around the speed at which the committee is prepared to lift its policy rate to neutral,with markets now pricing in 50 bp hikes in every meeting through September.We continue to expect 50 bp hikes in May and June,with the committee slowing the pace to 25bp per meeting from July onward as it sees signs of slowing inflation,"

 

Morgan Stanley  see rate hike by 50bp and SPX down to  3800 near term and 3400 long term

 

Former FED according to Wallstreet Journal "Rates May Need to Rise Quite a Bit to Get to Neutral" , he see rates to 5% 

Read entire article on Wall Street Journal

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Risk OFF tone persists, Fear is Growing & US Dollar is in Control

Risk OFF tone persists, Fear is Growing & US Dollar is in Control

Yesterday  European markets news pave the road for an EU recession in the second half of the year

Eurozone April final consumer confidence -22.0 vs -16.9 prelim

  • Economic confidence 105.0 VS Prior 108.5; revised to 106.7
  • Industrial confidence 7.9 VS or 10.4; revised to 9.0 (Heavy Hit)
  • Services confidence 13.5 VS r 14.4; revised to 13.6 

 

Euro area economic sentiment continues to fall further as the Russia-Ukraine conflict is not seems to stop

Sales are also down in Germany, March retail sales -0.1% vs +0.3% m/m expected prior was 7

Selling price expectations rose to an all-time high of 60.8 - up from 57.2 from (that is not good for inflation)

How we would expect to protect ourselves from this possible recession:

  • Bought Precious Metals Silver & Gold (Yesterday we added some silver because was a good price)
  • Bought Defensive Stocks like Gilead's, Philip Morris, Imperial Brands, TeamViewer
  • Bought some REIT stocks 
  • Bought Energy Stocks like: CNQ, PBA, ALVOF  (too late to act now on these areas)
  • Bought some stocks exposed to Agricultural land & Soils like ALCO. 

Fear is growing at Highest levels since 2008, just take a look  on CNN Business FEARS picture above 

Our real time RIsk ON/OFF indicator

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US Q1 advance GDP Terrible values -1.4% vs +1.1% expected

US Q1 advance GDP  Terrible  values -1.4% vs +1.1% expected

Yesterday, Advanced GDP was published and we saw horrible  values with -2.4% deviation from expected values. All branches of the GDB were in red.   

  • Q4 final was 6.9% annualized
  • Consumer spending +2.7% vs +2.5% prior
  • Consumer spending on durables -4.1% vs +2.5% in Q4
  • GDP deflator +8.0% vs +7.3% expected
  • Core PCE +5.2% vs +5.4% expected
  • GDP final sales -0.6% vs +1.5% in Q4
  • Nominal GDP vs up 14.3% annualized in Q4
  • Business investment +9.2% vs +2.9% in Q4
  • Home investment +2.1% vs +2.2% in Q4
  • GDP ex motor vehicles -1.3%

The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased.

The Real problem for the US Economy it's not that GDP is an inflation of 8%.

Economic growth returned in the years after the 2008 recession. The US entered an era of low growth but well below previous recovery phases. That sluggish economy is why the Fed kept rates low and launched QE (quantitative Ease).Fed officials talked of letting the economy “run hot,” and tolerate a period of high inflation in order to restore long-term averages.

Covid 19 and Ukraine-Russia war is threatening to change this high inflation with hiper-inflation (over 10%).That suggests recession might be coming anyway in 2022-2023, even if the Fed weren’t tightening policy.

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The Russia-Ukraine War will Dominate Markets this Week

The Russia-Ukraine War will Dominate Markets this Week

After high Inflation in US and Europe, the Covid-19 pandemic outbreak, a new event like war between two major countries affected the markets. War between Ukraine and Russia pushed this morning Gold over 2000$, Oil to 124$, Soybeans 1686$ and Corn to 775$. During war times precious metals, Oil and Grains perform well instead of risk assets like stocks.

Gold pop UP!US OIL POP UP

High level of sanctions from the Western Economies will destroy the Russian economy in the medium term. The Putin regime will fall in the near future because you can't win a war completely isolated from western world and you can't govern with terror and mass-media censorship.

According to the last Russian laws, you can get 15 years in jail if you transmit information from the battlefield that is not what the regime wants. All social media are closed, also internet websites like BBC, CNN, The Guardian etc. If the Putin regime it's not quickly removed, the Russian people will live like in the North Korea.

Also, some important brands like Toyota, Ford, BMW, Mercedes, VW, Oracle, SAP, Mazda, Nike, PayPal, Apple, IBM, DELL, Mitsubishi have closed the doors to the Putin regime. The Russian currency is moving down by over 30%, and the Moscow stock market is closed for three days in a row.

With the US & EU already facing the highest inflation in over four decades, triggered by the Covid lockdowns and restrictions, and the February CPI release this week anticipated to show an escalation during the previous month, the real possibility of an economic recession is even larger.

Therefore, the Federal Reserve's upcoming policy meeting on Mar. 15-16, will start a new interest rate hike cycle and it's not advisable to be exposed on the growth stocks. We still own high dividend stocks in the energy and finance sectors and also, we are keeping our Gold & Silver positions. We anticipate further weaknesses in stocks this month.

The United States and European allies are exploring banning imports of Russian oil, Blinken said on Sunday, and the White House coordinated with key Congressional committees moving forward with their own ban.

"A boycott would put enormous pressure on oil and gas supply that has already felt the impact of increasing demand. Prices are likely to rise in the short term, with a move toward $150 a barrel not out of the question Such a move will put further pressure on global economies, pushing inflation higher, leaving central banks debating how quickly rate hikes should be implemented." according to some analysts from CMC Markets.

"The war has clearly increased the risk of a stagflation scenario for the euro zone, where you will have a stagnating economy and much higher inflation on the back of high energy prices," said Carsten Brzeski, global head of macro at ING.

We stand with the Ukrainian people that fight for their freedom and we want to help mothers with children that are refugees. Right now, we are facing a real drama on the Ukrainian border as the refugee and their children are staying over three nights on -15°C without food and water.

It's estimated that there will be over 10 million refugees this year, if the conflict does not stop soon. 

ukrainian refugees

If you want to help refugees, you can donate on these links:

https://www.unicef.org.uk/donate/donate-now-to-protect-children-in-ukraine/ 

https://donation.dec.org.uk/ukraine-humanitarian-appeal

https://donate.unrefugees.org.uk/ukraine-emergency/~my-donation

https://donate.redcross.org.uk/appeal/ukraine-crisis-appeal

https://www.icrc.org/en/where-we-work/europe-central-asia/ukraine

https://www.savethechildren.org.uk/

https://donate.careinternational.org.uk/page/100263/donate/1?ea.tracking.id=e75_orgsocial

https://www.peopleinneed.net/

https://msf.org.uk/

https://donate.unhcr.org/int/en/ukraine-emergency

You can help Ukraine Army here:

https://savelife.in.ua/donate/        

https://www.portmone.com.ua/r3/uk/terminal/index/index/id/118103/

Слава Україні! (Slava Ukraini!)

Glory to Ukraine!

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ECB Valleroy: The decision on rate hikes is not needed before June meeting

ECB Valleroy: The decision on rate hikes is not needed before June meeting
  • The decision on rate hikes is not needed before June meeting
  • Any speculation about calendar of future lift-off is at this stage premature
  • We will retain our full optionality about pace of normalization
  • Its calendar will remain a gradual, state-dependent and open in moving from one stage to the other
  • Keeping net asset purchases open ended from October would not be appropriate
  • APP purchases would end in Q3
  • another way to enhance optionality could be to remove the word "shortly" from the forward guidance on asset purchases
  • Optionality would mean that lift-off could possibly take more time if warranted

Decision on partial troop withdrawal has been taken added some optimism on markets (SP500 +1,58% NDQ +2,58) but we still have questions about inflation and growth

Oil & gold come back to previous levels

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Inflation is growing: CPI=7,5% with 0,2% over estimate - Stocks Down - Risk Off

Inflation is growing: CPI=7,5% with 0,2% over estimate - Stocks Down - Risk Off

Yesterday was a special day for trading markets because of rising in CPI. Stocks were up with over 2% percent at the start of the US session but reversed sharply with over 5%. Inflation surprised markets expectations but more interesting was FED Bullard (a voter in monetary Policy's) reaction to CPI:

He sees a 100-basis point increase by July 1.

50 BPs in March but will defer to Powell.

Would favour changing rates between meetings.

FED balance sheet reduction may require asset sales.

What is in CPI to justify the reaction above?!

Highest reading in 40 years

m/m CPI 0.6% vs 0.5%

Real weekly earnings -0.5% vs +0.1%

Core inflation:

  • Ex food and energy +6.0% vs +5.9% y/y expected
  • Prior ex food and energy +5.5%
  • Core m/m +0.6% vs +0.5% exp
  • Prior core m/m +0.6%

  1. Housing +0.7%
  2. Owners rent +0.4%
  3. Food +0.9%
  4. Energy +0.9%
  5. Gasoline -0.8%
  6. Medical care +0.6%
  7. Apparel +1.1%
  8. Services +0.4%

Only Ice scream is 👇

You can read detailed report here 

What are the reasons for these readings?

First Supply chain bottlenecks because Covid outbreak and accelerated economic growing from 2015 just look at SPX500

Citi Bank now sees 50 basis point Fed

What will happen from here?

I'm expecting inflation to peak in April-May and rates to go near to 4% in the future. Are we at the starting point of a depression?!

We intend to grow up our exposure on Gold & defensive stocks.

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Risk Tone is improving This week

Risk Tone is improving  This week

After the meeting between Putin and Macron, the markets have regained some losses from the first month of the year.

Macron: "Putin told me that he would not be behind any escalation in Ukraine". Instead, the meeting is not solving the problem between the Russia and Ukraine, but markets have anticipated a lower narrative tone in the future.

Putin Macron meeting

Better than expected, Atlanta FED GDP now rises to 0,7 from 0.1 also fuels a positive Risk tone.

Atlanta GDPNow forecast

Some good news from the inflation front announced by ECB Villeroy also helps stocks. Villeroy said:

 “Inflation hump should be temporary.

French inflation is to gradually diminish within a month.

I guarantee we will do what is needed for inflation to return to around 2% over time.”

Stocks are up SPX500 0,84%, NDQ 1,21% DJI +1% and VIX -5.67%.

Instead of some support in stocks, investors are concerned about the tightening announced in March from FED.

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Risk-off tone will persist in February: ADP & EU Inflation in focus

Risk-off tone will persist in February: ADP & EU Inflation in focus

 The ADP job data surprised to the downside this month: - 301K versus +200K estimate.

All economic branches were down this month:

  • Goods -27K
  • Manufacturing -21K
  • Services -274K
  • Transportation and Utilities -62K
  • Leisure and Hospitality -154K
  • Construction -10 K (Also Canadian Building Permit felt -0.3 over estimate)
  • Education & Health Services -15 K
  • Small firms -144K decline
  • Medium firms -59K decline
  • Large firms -98K decline

The fell was the largest since April 2020 because Omicron outbreak, according to FED officials.

BOE has increased official bank rate by 0.25 points to 0.5%, today.

Eurozone inflation hits new record 5,1% CPI versus 4,4% expected (Highest since 30 years), that will put more pressure on ECB today.

Bidden sent 3k US Soldiers to Romania Poland and Bulgaria.

IMF Chief Georgieva: Geopolitical tensions make uncertain outlook for global economy.

Regarding our portfolio, we shrink our exposure to growth stocks and closed some losing positions on companies that have large debts or lower growth expectation (ASAN, BILL, W, NVCR, RDFN), and further, we closed two days ago our grains exposure with 20% percent profits in three months. We expect to 💪 our dividend stock's exposure's and add to precious metal positions if we see another 2k points decrease in Gold and Silver after FED rate increases. We think market will retest soon, lower point from January and US Dollar 💵 will stay in upper zone. US dollar speculative positioning and bullish sentiment are surging. SP500 Retest Of January Lows  is about to begin.

You can check real-time  our risk-on/off tone indicator .

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Asian Indices go higher after China cuts it's rates

Asian Indices go higher after China cuts it's rates

China cuts Loan Prime Rates: 1 year to 3.7% (from 3.8%) & 5 year to 4.6% (from 4.65%)

The People's Bank of China cut its Medium-Term Lending Facility rate to 2.85%

  • from 2.95%
  • injected 700bn yuan with 500bn maturing
  • 1 year MLF
  • first cut since April of 2020

On the 7-day reverse repo today, rate cut to 2.1% from 2.2%

  • 100bn yuan injected today
  • 10bn yuan matured today

On Thursday this week, 20 January, we get 1 year and 5 year Loan Prime Rates set. 

A cut to the MLF will be seen as an indication the LPR rates too could see a cut.

Asian stock go higher after this Bank of China Move Nikkei +1% , Topix +0,89, Kospi +0,49, Hang Seng +2,38% 

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Markets Expectations for 2022 regarding Stocks, Gold, Oil and Commodities

Markets Expectations for 2022 regarding Stocks, Gold, Oil and Commodities

As we started a new year 2022, we want to present you our conclusions on markets and an analysis of our managed portfolio. In this article, we will analyse four major assets: Stocks, Gold, Oil and Commodities.

After stellar gains registered in 2021, in 2022 markets are expected to grow at a moderate peace, due to the rising risks.

We are bullish on Gold and Silver, and we are also confident on a future increasing in agricultural commodities, as we also presented in our article: https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 

Now let’s take a look on some factors that can influence stock markets in 2022:

Bullish Factors:

  • The domestic economy is growing
  • Consumer spending overall is strong
  • Employment is expanding, and the unemployment rate fell to 4.1% from 4.2%.
  • Corporate earnings are growing by 27% (Apple it's $3 trillion company & Tesla deliveries grow by 87%)
  • Covid-19 Pandemic new variant Omicron is decreases in death rates

Bearish Factors:

  • Rising interest rates: FED official announced this week that they see this year three, instead of two interest rates increase
  • Some stocks are extremely overvalued, like FTNT (over 100%: yesterday we closed our position on FTNT) or MRNA. Also, almost 100 stocks from S&P500 index are up over 50%, which is too much in our opinion. If US interest rate will hit 5%, stocks will go down badly, similar to the 1987 crisis.
  • Continuing inflationary pressures because of transportations issues. We already discussed this topic in our article Shipping Congestions and higher prices will continue until ends of 2022 according to Morgan Stanley
  • Global tensions between Russia and US on Ukraine / Kazakhstan, also China and US on Taiwan, which are possible to extend into some major conflicts.
  • Covid-19 Omicron it's still here, and we cannot anticipate the implications of other virus mutations. If we have other lockdowns because of new pandemic outbreaks, stocks will be badly hit.

Other opinions regarding stocks:

JPMorgan Kolanovic says to buy the dip:

“Higher bond yields should not be disruptive for equities, but rather support our call for a growth to value rotation. […] We stay positive on equities and expect Omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll. As this wave fades, it will likely mark the end of the pandemic Omicron’s lower severity and high transmissibility crowds out more severe variants and leads to broad natural immunity”.

On congested supply lines: “signs of supply constraints potentially passing their worst point”

BlackRock's largest fund asset has an optimistic view, but they raise concerns over China Covid19 policy: 

“The Fed has signalled three rate rises this year – more than we expected. Markets seem primed to equate higher rates as being negative for equities. We’ve seen this before and don’t agree. What really matters is that the Fed has kept signalling a low sum total of rate hikes, and that didn’t change last week. This historically muted response to inflation should keep real policy rates low, in our view, supporting equities.” 

“And not all spikes in long term yields are the same. Last week’s jump in U.S. Treasury yields was about the Fed signalling a readiness to start shrinking its balance sheet. This could result in a return of the term premium that investors typically demand for the risk of holding long-term bonds. This is not necessarily negative for risk assets as it can reflect an investor preference for equities over government bonds.”

Regarding China slows growth rate: “The key question is how China’s zero-COVID policy will stand up against Omicron. The policy so far has proven effective and enjoyed popular support, but has left China with almost no natural immunity. We expect the country to maintain the policy – at least optically – in this politically important year. This raises the spectre of more restrictions on activity, from targeted measures that keep the economy humming (Shanghai) to full-scale lockdowns (Xi’an). As a result, we believe downside risks to China’s growth have risen, even as Beijing appears bent on achieving its growth target this year by loosening policy.”

We think it's reasonable for Gold to push a higher price to 2500 after a huge stimulus amount, but it will happen only after the FED finishes raising the interest rates. Oil will slow down only after the inflation will also slow down, probably in the second part of the year according to Citi Bank Forecast 

We added to our portfolio some agricultural commodities and precious metals (Gold and Silver). and we sold some positions like: Tesla, Fortinet, Shopify, DocuSIgn, Disney, TradeDesk. In 2022 we plan to add more dividend stocks because we have a more neutral view on this year’s growth.

Further, I'm not a big fan of Crypto currencies. 40K for Bitcoin is a good price, but if it goes further under 30K, it's a good to buy and hold bet.

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Types of 'Flations in Economies: Inflation, Hyperinflation, Deflation, Crossflation, Stagflation

Types of 'Flations in Economies: Inflation, Hyperinflation, Deflation, Crossflation, Stagflation

Where are we today?!

Today, markets are in a recessionary stage because of more than a decade of financial bad investments; we are witnessing a process of money creation (Helicopter Money) to a scale that a few years ago was unimaginable for the financial world.

Money creation from nothing by the FED was growing with approx. 22% in 2020 because of the Covid19 pandemic outbreak, but if we have a look over the past 50 years, we have few times only 10 percent money increase from one year to another. To give you an idea about the magnitude of this move, it's a must to say that in WW2 money creation was only 15%, and it was further followed by a two digits inflation.

This process of money creation is happening at a global scale, including FED, European Central Banks and Japanese Central Bank.

What is Inflation?!

Inflation represents increases in the money supply, as a consequence of monetary inflation. If the FED will print more money, than a larger amount of money will chase the same amount of goods and services. Inflation it's happening also when production can't keep the pace, or when we have disruptions on transports of goods. Central Banks consider a small inflation as a good thing, as this will stimulate people to spend more money, therefore it also works as a catalyst for economy. It's famous that 2% represents a very good target for inflation.

When we have two digits inflation, we call it Hyperinflation, or inflation it's out of control, this being the worst scenario that could happen for an economy. There are many examples in the history, with hyperinflation that carried a huge negative impact over countries like Germany before WW2, Zimbabwe, Yugoslavia and Greece - more on this, at: https://www.cnbc.com/2011/02/14/The-Worst-Hyperinflation-Situations-of-All-Time.html

We talk about Deflation as the opposite process of inflation, when the money supply shrinks. In a Deflation scenario, a smaller amount of money targets the same amount of goods and services. As we mentioned earlier, a small inflation is considered good for economy, and this is also valid for a small deflation.

With little deflation, prudent investors are rewarded because their money are more valuable, but if we have an aggressive deflation (like 2008 scenario) the debtors are punished. High rates of deflation imply a high rate of defaults and further, shrinking in the assets value.

At the present moment, we are witnessing a deflation scenario because we register low discretionary spending. People changed their habits during the Covid19 pandemic, they now prefer low budget activities like watching Netflix with home-made popcorn, instead of going to the IMAX movie theatre. Very few from the middle class will celebrate anniversary birthdays on expensive restaurants with $250 champagne and Taxis.

Risk appetite will continue to slow down during 2022, a year that will be marked probably by more bankruptcies and lower corporate spending. Deflation is everywhere to be seen in 2022 and Governments will have to play a more decisive role for economies in the following years, as some sectors in the economies will start to collapse under the pressure of Inflation, while some others will be relieved under Deflation, thus creating a concurrent mixing Inflation / Deflation scenario, which emerged into a new concept: Crossflation.

What Is Stagflation?

Stagflation (economic stagnation) is characterized by slow economic growth, high unemployment rates, and a continuous pressure of the rising prices. Stagflation can be alternatively defined as a period of inflation combined with a decline in the Gross Domestic Product (GDP).

A challenging 2022 will bring more insecurity, but also new opportunities for informed investors that are willing to take risks.

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We Anticipate a Food Crisis in 2022. How to protect your investments in case of a Food Crisis

We Anticipate a Food Crisis in 2022. How to protect your investments in case of a Food Crisis

The news about higher prices of food abounds in online stream media. Agricultural prices will go higher in 2022 and will have a significant impact on CPI. The main reason of higher agricultural prices in 2022 are Shortage of Fertilizers. Fertilizers prices have grown up this year because of the higher prices of gas and transportation disruptions.

Fertilizer shortage

Crops benefit more from fertilizer treatments in the early phases of the planting season. Delayed or missed application during the cycle will almost certainly result in lower yields, which tightens the food supply and drives the prices up.

Transportation disruptions because of Covid19 outbreak has affected also delivery of parts for agricultural machinery. Many farmers acquired some agricultural machinery components from over 1000 km distance. Farmers from Ukraine – the main corn producer in Europe – bought agricultural machinery parts from Austria or Germany with considerable time delays (over three months). Many farmers are purchasing parts in advance for safekeeping.

U.S. farmers appear pessimistic. Agricultural producer sentiment has started to decline in recent months. The sentiment for future conditions is now nearly as low as it was in the peak economic closure of the 2020 pandemic. Farmers have expressed concern over high input costs – i.e., fertilizer prices – weakening their operating margins.

farmer Sentiment 2021

We play this trade idea to buy Agricultural Funds like:

  • Invesco DB Agriculture Fund (DBA)
  • Elements Linked to the Rogers International Commodity Index — Agriculture Total Return ETN (RJA)
  • Teucrium Corn Fund (CORN)

For European traders, we have limited opportunities via Lyxor Commodities Refinitiv / CoreCommodity CRB EX-Energy TR UCITS ETF – Acc (CRN). Lyxor is a fund with over 56% exposure on agricultural products, and also precious metals (11.78%) and commodities stocks (11.35%).

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ECB Meeting Today Preview September 2020

ECB Meeting Today  Preview September 2020

The ECB has a monetary policy announcement on Thursday and many investors are wondering if euro will fall as the CAD or AUD.ECB was one of the most dovish central bank because of COVID spread and low performance economy.

What we need to watch today:

  • Consensus looks for a slowdown in the pace of PEPP purchases during Q4
  • A decision on the future of PEPP is not expected to take place at the upcoming meeting
  • Economic forecasts are set to see upgrades to 2021 growth and inflation. 2023 inflation is set to remain sub-target

Focus for PEPP will instead fall on the Q4 pace of purchases which is set to be lowered from the current "significantly higher" level of EUR 80bln/month

The press conference will likely see President Lagarde caution that any slowing in the pace of purchases for PEPP will not be regarded as a "taper" as purchases are not on track to reach zero and policymakers will vow to maintain favorable financing conditions.

Policymakers were not expecting to make a decision on the future of PEPP bond purchases in September given the persistent uncertainty posed by the pandemic but. , a decision in October or December was seen as more likely.

Chart below you can see nomura forecast on PEPP

Ecb Tapering Forecast

What about Rates

Rates according to Lagarde will “remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term."

Ing case scenario on ECB Forecast
ING ECB meeting forecast

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