Posted on 05/10/2022 9:45:38 AM PDT by blam
It may come as a surprise to some but the head US trader of the same bank that spawns mARKKo Kolanovic’s weekly bullishness, is also one of the most bearish market commentators. Below is the trading desk commentary for JPM’s Elan Luger, head of US trading.
The most positive thing I can say about this market is that what had been heavily debated in Q1 is now the overwhelming consensus. Everyone is a bear. China is shutdown, inflation is running wild, Russia / Ukraine continues to impact supply chains, animal spirits are dead, the fed has lost control, QT is coming, a recession is coming, performance is terrible, privates aren’t marked right… did I miss anything?
Our running assumption has been “fair value” for this market is ~$4200 which is 15-16x 2023 EPS which was the multiple the last time the 10 year was at 3%.
With all of the above risks, investors will likely require a healthy discount to fair value before getting excited about equities again. Whether that level is 4000, 3800, or 3600 I haven’t a clue, but we are getting closer.
What I will say, is I haven’t seen investors as unanimously bearish since ’08. And we all know, there is no rally like a bear market rally. Maybe this week’s CPI is the catalyst?
Maybe… because not only will the April CPI be a big drop from March (consensus at 8.1% down from 8.5% Y?Y, mostly due to base effects), but more importantly, in addition to the reversal in soaring used car prices, we can now confirm that the peak in rental growth is also behind us.
We’ll have more to discuss on peak CPI in a subsequent post.
I remember 2008 predictions....some were predicting a total economic collapse in 2010, Peter Schiff said that gold would exceed $2,500 an ounce by 2010.
(ahem) I still have some prepper supplies from that era.
Notice that the “expert” did their calculations based on current ten year rates, totally ignoring the probable future increases in those rates.
Real investors are not that stupid.
The only reason we didn’t have a total economic crash in 2008 was because the Fed papered over things with their easy money policies. But that was like kiting checks, eventually the flim flam doesn’t work anymore, and that’s where we are now. They are stuck because they can’t raise rates sufficiently to control inflation because the interest on the deficit would consume most of our Federal spending. At this point they can only hope to slow it down with a recession and demand destruction as things become too costly for most people to afford. Don’t let them fool you, inflation isn’t going away any time soon.
There a bunch of young/new traders who are making a few bucks off going short. They are making money on selling puts and buying VIX calls.
They will get their faces ripped off.
FUD. Time for calls.
You know things are bad when economists and traders are celebrating 8.1 % inflation. That's like watching gas prices double and celebrating when they drop a penny for one week before climbing again.
We are able to export much of our inflation to other countries because we have the world’s reserve currency, but even that has its limits. Our irresponsible fiscal policies could very well lead to the dollar losing its position and other currencies,(or a basket of currencies or IMF drawing rights ect) slowly usurp our position as what is happening now. Biden’s confiscation of Russia’s foreign currencies held in Central banks is only going to accelerate this process.
As long as we maintain the reserve currency all is ok. Russia tried to get a bric system up and is paying the price. China has a better chance to do it and may use that in their Taiwan coming escapade. Putin over shot his runway in Ukraine albeit they can probably achieve a level of achievement unless dummy here commits our military which would be a disaster. Meanwhile we are dell eating our resources aiding the proxy war. China is getting stronger. Interesting times.
China’s financial system is opaque, nobody trusts them, and their deficit in proportion to GDP is comparable to ours, so I don’t see the Yuan taking over except in trade between China and a few countries they trade with like the currency swaps they are doing with Russia now. China is no threat we can easily shut them down at any time, both economically and militarily. Russia on the other hand has a deficit of only 30% of their GDP compared to the over 100% of GDP in western countries, Japan, and China. Plus Russia can back theirs with hard assets they are rich with oil & gas reserves and strategic metals, which is one of the major reasons we are screwing with them now in our proxy war in Ukraine.
Russia has no need for a financial reset like all the countries in the West do and that is the crux of the issue here. The old saying “all wars are currency wars (or bankers wars) applies here too, and Russia is already trying to link their Ruble to gold. I think the fiat dollar is on it’s way out, future currencies will be linked to commodities and economic production. The only thing holding the dollar up at this point is because the vast majority of worldwide debt is in dollar denominated debt, so dollars are required to pay it. But that is slowly winding down, only 60% of international trade is now down in dollars and that % is going down year by year and that trend is accelerating. That’s why the neocons are pushing WW3 to keep control and remove Russia as a treat. That is the big picture of what is really going on, all the rest is just a smoke screen.
I still have things leftover from 2002. Heh.
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