In this issue: growing GDP, US Dollar rally easing, a railroad strike averted, tail risks in Crypto, luxury items and emerging debt (maybe) coming back to normal levels, and a few thoughts on 2023 threats
Indicators
Previous update: November 27th, 2022
🟢=positive 🔴=negative ⚪=neutral
▲=increase ▼=decrease ─=no change
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🟢 ▼ US Inflation: 7.70% (vs 8.20% 09/22)
🔴 ▲ US Funds Rate: 4.00% (vs 3.25% 09/22)
🟢 ▼ US 02Y T-Note (Yield): 4.28% (vs 4.44%)
🟢 ▼ US 10Y T-Note (Yield): 3.51% (vs 3.73%)
🟢 ▼ DXY index: 104.50 (-1.47% vs 106.06)
🟢 ▲ EURUSD: 1.05 (+1.94% vs 1.03)
🔴 ▲ EU Inflation: 10.70% (vs 9.90% 09/22)
🔴 ▲ EU Funds Rate: 1.50% (vs 0.75% 09/22)
🔴 ▲ USDMXN: 19.38 (+0.47% vs 19.29)
🟢 ▼ MX Inflation: 8.41% (vs 8.76% 09/22)
🔴 ▲ MX Funds Rate: 10.00% (vs 9.25% 09/22)
🔴 ▲ MX 1Y Cetes (Yield): 10.84% (vs 10.78%)
🟢 ▲ DJIA: 34335.73 (+0.44% vs 34187.00)
🟢 ▲ S&P 500: 4061.90 (+1.42% vs 4005.00)
🟢 ▲ NDQ100: 11899.54 (+1.90% vs 11677.50)
🟢 ▲ RUT: 1886.01 (+1.60% vs 1856.30)
🔴 ▲ GSCI: 611.52 (+1.09% vs 604.91)
🔴 ▲ Brent Oil: 89.06 (+2.71% vs 86.71)
🔴 ▲ Gold: 1797.59 (+2.47% vs 1754.26)
🟢 ▲ BTC: 17108.90 (+4.19% vs 16421.63)
🟢 ▲ ETH: 1280.08 (+7.33% vs 1192.68)
⚪ Overall
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The Indicator Screener also includes the updated mid-term forecasts, available only for paid-subscribers:
Weekly Agenda
Monday: US ISM Services Index report
Tuesday:
Wednesday:
Thursday:
Friday: US Producer Price Index (PPI) report, US Consumer Sentiment report
News
⚪ Charting income distributions in 16 different countries | This graphic shows income distributions in 16 different countries around the world, using data from the World Inequality Database (link)
🟢 US economy grew faster in Third Quarter than first estimated | US Gross Domestic Product (GDP) grew at an annualized rate of 2.9 percent during the third quarter, according to a second estimate released Wednesday (link)
🔴 Yield curve inversion reaches new extremes | Unusual relationship between Treasury yields reflects investors’ bets on easing inflation and future rate cuts (link)
🟢 US Dollar erases more than half of this year’s gains on Fed bets | The US dollar has erased more than half of this year’s gains amid growing expectations the Federal Reserve will temper its aggressive rate hikes, and as optimism grows over China’s reopening plans (link)
🟢 President Joe Biden signs legislation to avert rail shutdown | President Joe Biden on Friday signed legislation to avert a rail shutdown after congressional lawmakers raced to pass the measure amid concerns over the economic danger posed by a possible strike (link)
🔴 Rising Tether loans add risk to Stablecoin, Crypto World | Tether reports hadn’t disclosed that loans it issues are denominated and payable in the token (link)
🔴 Crypto lenders’ woes worsen as Bitcoin Miners struggle to repay debt | Beleaguered crypto lenders are being dealt another blow from Bitcoin miners as they weather the aftermath of the FTX collapse (link)
⚪ Crypto hedge funds burned by FTX seek Wall Street-style middlemen | To avoid another catastrophe, some survivors have started seeking alternatives to the current infrastructure in crypto markets, taking a page from Wall Street’s rulebook and demanding that separate entities, like custodians, hold their crypto instead (link)
Musings
The theology of capital allocation | Reflections on God as Outsider CEO (link)
Bitcoin sinks further 70% in Standard Chartered list of possible 2023 upsets | Speculators cleaving to the view that the crypto rout is mostly over are at risk of a rude awakening in 2023, according to Standard Chartered (link)
Opportunities
Top macro fund that shorted everything is buying emerging debt | Mark Nash, who had been bearish on bonds including Treasuries and credit, says there’s value in emerging-market sovereign debt (link)
Trophy Rolex, Patek and Audemars Piguet prices skid to pre-boom levels | The Subdial50 Index, which tracks prices for the 50 most traded luxury watch references by value, has fallen to levels not seen since before an unprecedented surge in 2021 and early 2022 (link)
A few thoughts on…
2023 threats
I keep questioning the 2020 Bull Market that went on in spite of one of the biggest social challenges of modern history: the Covid Pandemic and its impact on all economic activities.
We are not out of the woods yet, but the stock market shows that the discounted future valuation of the biggest companies is more than 20% higher than before the pandemic (S&P 500 index at 4000 vs 3400). How can that be possible? Aren’t we arguably in a worse situation now? If 2020 valuations reflected 20 perfect-ish years of growth ahead, shouldn’t we now at least think there might be 2 or 3 complicated years within that timespan? How is it that our current outlook for the next 20 years is 20% better than the one we had in 2020? I don’t have an answer to those questions. At least not one that makes sense to me.
It’s naive to believe there is such a thing as 20 perfect years without problems, and future projection models take them as a given. In the long run, everything smooths out. But in a smaller timescale, everything has full impact.
For a while, I’ve been thinking about an economic reckoning during the first quarter of 2023. Some sort of “reality check” that puts things back to a reasonable state, washing the last remnants of the exhuberance seen during the previous bull market. Currently, we are dealing with the lingering effects of the pandemic and some new problems, mainly the Ukraine War and its consequences for global trade. That has already been discounted (sort of) within the current prices. What could surprise us in the near future, during 2023?
This is my current list, ranked from most to least likely to impact markets during 2023:
Lengthening and/or worsening of the war in Ukraine
Shortage of food and/or commodities
Bad Q42022 corporate reports
Supply-chain issues
Bond liquidity problems
New international conflicts (US vs China, US vs Russia, Middle East, East Asia)
New local conflicts (US, Latin America, Europe, Iran, China)
Many of those items are closely related, and are subject to systemic behaviours. Most of them can already be seen lurking on the sidelines. Let’s keep track of them and see how it all plays out. And don’t forget black swans.
take care, have fun, be chill
-SM
There is more to life than money. Be in the know…
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