Mid Nov Market Update


General Market Take

The week got started out with god awful Japanese data, and the drumbeat of war in eastern Europe. Given absurd dovishness of Central Banks and the fact Lagarde will be speaking all weak (she is going to be dovish) - it’s going to be hard to see the rate hike narrative last in spite of extreme inflation. This is obviously an explosive combination given the fact inflation is likely to be well above the 5% target throughout much of 2022, a clear legal violation of the Fed’s mandate. But that is a problem for tomorrow. This week, should be a major pump. Further lockdowns should buouy risk assets further as Lagarde will cite down Austrian police state measures as a justification to print even more despite inflation.

Russia going to war should be on the margin bearish for gold, as it will exhaust Russian gold reserves. It should also be quite bullish for the US Energy Sector. Parabolic rises in food prices globally also have me interested in the food sector, especially Nutrien. Can see cooperation on Monday evening between Biden and Xi to fight inflation and talk about Climate. The animal spirits sales at Single’s Day in China make China the clear and abrupt bright spot versus Europe - which given the Evergrande headline flows should be supportive of a narrative change. Also worth noting German exports surprised rather dismally last week while Chinese Exports surprised to the upside.

The big question on my mind right now is this “Pfizer Pill” and the extent to which the market weights it versus Austrian lockdowns. Logically a 90% reduction in death should bring Covid mortality in line with the flu. Marc Benioff essentially Tweeted that Covid was cancelled. Politicians absolutely have every incentive to pretend that the Pfizer Pill doesn’t work in order to cement further power / print more $ / do more spending bills. But with tanking approval ratings, Biden might need to celebrate the Pill as the solution and reopen.

This skews risk reward more in favor of the food and energy commodity names which should face double power

1 NFT 2 Electric Vehicles 3 CCP 4 Bitcoin 5 Tesla 6 Metaverse 7 Covid 8 Ethereum 9 Defi 10 AMC 11 Gamestop 12 Inflation 13 Lightning Network 14 Artificial Intelligence 15 European Cities

Force Rank of Sectors

Overall - technology continues to have the best overall fundamentals. Just for example, the Nasdaq has a 2.6% free cash flow yield compared to the discretionary sector with only a 1.8% fcf yield. Z score of aggregate net income for the tech sector is .8 std vs flat for discretionary.

Utilities (XLU) Real Estate (XLRE) Staples (XLP) Discretionary (XLY) Industrilal (XLI) Fangs (FNGU) Financials (XLF) S&P (SPY) Energy (XLE) Dow (DIA) Tech (XLK) Healthcare (XLV) Basic Materials (XLB) Nasdad (QQQ)

TO DO ON SECTORS: need to add IWM, IJH into scoring framework. sloppy sloppy

Overall Bitcoin / ETH Signals

Very bullish on Bitcoin overall. ETF flows should continue to be price support for asset (yes, even w modest spot etf disappointment). Crazed Tether printing should keep price up. Modestly bullish on eth quantitatively. Qualitatively, much more bullish on Bitcoin due to Taproot upgrade coming, lightning network calendar etc. Think ETH is a funding trade above 50% APY with shitcoin longs.

Have a bullish bias on these names due to trend, data tracking, internal data.

The week Ahead

The economic calendar Nov. 15: Empire manufacturing Nov. 16: Retail sales; import/export prices; industrial production; business inventories; NAHB Housing market index; Treasury international capital flows Nov. 17: MBA mortgage applications; building permits; housing starts Nov. 18: Jobless claims; Philadelphia Fed business outlook: Langer consumer comfort; leading index; Kansas City Fed manufacturing index The Fed calendar: Nov. 16: Richmond Fed’s Thomas Barkin; Kansas City Fed’s Esther George; Atlanta Fed’s Raphael Bostic; San Francisco Fed’s Mary Daly Nov. 17: Fed Governor Michelle Bowman; Cleveland Fed’s Loretta Mester; Governor Christopher Waller; San Francisco Fed’s Mary Daly; Chicago Fed’s Charles Evans; Bostic Nov. 18: Bostic; Evans; Daly Nov. 19: Waller; Fed Vice Chair Richard Clarida The auction calendar: Nov. 15: 13-, 26-week bills Nov. 17: 20-year bonds Nov. 18: 4-, 8-week bills; 10-year TIPS reopening

Japan - Fumio Kishida later in the week, when he decides on a package of economic measures. Minutes from the RBA’s recent meeting may shed more light on the central bank’s decision to abruptly scrap its yield curve control in the face of market pressure and strengthening economic data. Meanwhile, Indonesia and the Philippines set interest rates on Thursday.

Meanwhile, in the euro zone, European Central Bank President Christine Lagarde will appear publicly at half a dozen events, providing multiple opportunities to guide investors before an all-important decision in December on the future of stimulus. Most prominent in her diary will be two hours of testimony to the European Parliament on Monday.

Last Week

Crypto

  • Taproot rolled out which makes it possible to have more anonymous Bitcoin and smart contracts. over 90% of miners have already indicated that they plan to upgrade to the new software
  • Grayscale Spot ETF disapproved potentially bc of Stablecoin regs, which is probably pretty bad
  • Optics of Austrian lockdown should kick off police state fever pitch

Asia

  • Japan is slowing. Gross domestic product contracted an annualized 3% in the three months through September from the previous quarter, the Cabinet Office reported Monday. Economists forecast a 0.7% decline.
  • China is slowing. “China’s aggressive approach to controlling outbreaks of Covid-19 is weighing on consumers, especially for catering and off-line retail sales. Consumer confidence remains weak, and analysts expect retail sales growth to slow 3.8% in the month.”
  • Dovish comments from Biden going into Xi. “From tackling the Covid-19 pandemic to addressing the existential threat of the climate crisis, the relationship between the United States and China has global significance”
  • China FX Reserves beat expects at 3.21 T vs 1.19 expected with a large boost in exports (27% yoy growth). Imports however disappointed leading to a huge $84.5B trade number vs 65B expectation.
  • Japan’s Leading index decelerated with month on month growth negative. Crazy Japanese PPI print at 8% vs 7% expects
  • New Zealand Card data month on month at 10.1% but still -7.6% year on year
  • Chinese PPI aggressive at 13.5% vs 12.4% expectations year on year. This is quite the inflationary print. At the same time new loans are way down to $826 B vs $1660B last. Social financing also nose dived to 1,590B vs 2900B last.
  • Japan aggressively buying Foreign bonds at 1,289.9B vs selling last time.
  • Australia has a “WTF” employment number with a 5.2% print vs 4.8% expects. Feels very bad man.
  • Baltic dry dropped massively from highs of 4650 to 2807
  • Monster Single Day. Alibaba said gross merchandise volume (GMV) during the 11-day period totaled 540.3 billion yuan ($84.54 billion), a more than 8% jump from last year’s 498.2 billion yuan. Source:

Europe

  • Potential military action. U.S. Secretary of State Antony Blinken spoke on Saturday with French Foreign Minister Jean-Yves Le Drian to discuss reports of what they called “concerning” Russian military activity in and near Ukraine, the U.S. State Department said on Sunday.
  • United Kingdom talking about potential war with Russia. Source: Guardian
  • Lagarde doesn’t care about inflation Source: Bloomberg
  • Possibility for trade war between UK and Europe is increasing due to Northern Ireland Source: Bloomberg
  • Swiss unemployment surprised to downside with 2.5% vs 2.6% expected. Switzerland at full employment, pretty impressive.
  • Industrial production in Europe pretty good – 5.2% vs 4.1% expects September in Europe
  • Italian industrial production was a beat vs expectations at 4.4% yoy
  • European confidence 18.3 vs 15.5 expects. Strong number
  • Quote from Lane indicates pretty strongly that QE is about monetizing deficit. “A comprehensive and robust macroprudential policy framework can also significantly reduce the burden on national fiscal policies”
  • Lane’s speech also hinted at fiscal unification of the Eurozone. “ such programmes can operate more smoothly if there is an effective and transparent fiscal framework to simultaneously underpin fiscal sustainability in each Member States and an appropriate euro area fiscal stance.”
  • Lane focused on Green asset purchases “In addition, an efficient SGP also has to take into account that Europe cannot ignore or delay the necessity of the green transition and digital transformation. “
  • Lane did talk about pro-cyclical expansion potentially require tightening but then goes on to the fiscal sustainability argument right away
  • Has a crazy chart about EU’s natural rate of interest at -1% Source: ECB Website
  • Terrible German Export Septmber number at -.7% vs +.5% expects leading to a declining trading balance.
  • UK housing market is strong price wise with RICS House price balance at 70% vs 65% last
  • United Kingdom Business investment implodes at .4% vs 2.6% expects. Manages a surprise in home construction, and overall construction output +7.2% vs 6.9% expects. Still misses GDP at 6.6% vs 6.8% expects. Industrial production coming in weak at 2.9% vs 3.1% expects with sequential deceleration in September
  • SNB talking about internationalization and technology leading to the breakdown of dealer marketshare in FX market. Source: ECB Website

EM Ex asia

  • Brazilian CPI is insanely high at 10.67% yoy with a giant foreign outflow
  • Brazilian Retail sales -5.5% year over year. Oh my god haha.
  • Brazilian Services sector also missed growth expects at 11.4% vs 13.5% expects
  • Russian resrves at 623.2B USD - an incremental inflow of $3b vs last print. Not huge given gas issues.
  • South African Gold production was terrible. -3.4% vs +2% expects.
  • Indian CPI higher than expects 4.48% and Industrial production decently big miss at 3.1%
  • Increasingly seems to be a run on EM carry currencies Source: Bloomberg

United States

  • Terrible showing at 30 year auction. The Treasury’s sale of $25 billion in new 30-year bonds Wednesday drew a yield more than five basis points higher than the yield in pre-auction trading just before the bidding deadline, a sign of weak demand. The so-called tail was the worst for a bond auction since August 2011. Source: Bloomberg
  • Kashkari - let’s not address inflation! Source: Bloomberg
  • Rumors of Brainard as new Fed Chair - she’s the one who came up with the amorphous Maximum employment idea. Also worth noting she wanted Bank div cuts, YCC, is a fan of green asset purchases and CBDCs. “Inclusive and broad based employment”
  • No Hikes til 2023, Morgan Stanley Source: Bloomberg
  • Schumer wants to hit the strategic petroleum reserve lol.
  • COP26 ended coal power. Uhh… Virginia?
  • Yellen saying that fighting Covid is now the way to fight inflation. Source: ECB Website
  • Employment trends index looks pretty strong in October at 112.2 but then get rugged on Continuous Jobless claims at 2160 vs 2095
  • Consumer confidence is imploding - 62.8 vs 70 expected
  • Core PPI in the US printed 6.8% and PPI was 8.6%. An insane number by any account. Followed up by hot CPI print at 6.2% vs 5.8% expects. Risks “unmooring of inflation expectations”. At the same time initial claims printed 267k vs 265k expects – implying job market might not be that strong
  • Real earnings in October -.9% month on month
  • Insane crude draw in the US – weekly crude stocks drawn down 2.5M vs +1.9M add expects. Crude inventories also came in below expects at 1M vs 2.125M barrells, and distillate stocks absorbed at 2.6M vs 1.1M expected draw. Nat gas storage came in aggressively below expects at 7B vs 10B expects
  • Mortgage market in beast mode with week on week mortgage applications up 5.5%. Mortgage market index at 658 vs 623.8 last.