1/THREAD
I strongly feel that we need a mkt correction but I do not believe this is the time when such a correction will materialise.
In other words, I expect a broad market rally in the near term, once the mkt digests what both politicians & central banks want to do, globally.
I strongly feel that we need a mkt correction but I do not believe this is the time when such a correction will materialise.
In other words, I expect a broad market rally in the near term, once the mkt digests what both politicians & central banks want to do, globally.
2/
Powell's speech today was v interesting.
A. The short term rise in inflation we will see, will just be that - short term, not sustainable.
B. US economy is not even close to being in full employment which is what the Fed wants to see
I.e. no rate rises this yr at least.
Powell's speech today was v interesting.
A. The short term rise in inflation we will see, will just be that - short term, not sustainable.
B. US economy is not even close to being in full employment which is what the Fed wants to see
I.e. no rate rises this yr at least.
3/
Even more interesting was Powell mentioning the Fed had not met its own condition for rate rises, even before the pandemic!
So, employment figures will have to be much higher than pre pandemic levels.
Now we understand what he meant by 'nowhere close to' rate rises.
Even more interesting was Powell mentioning the Fed had not met its own condition for rate rises, even before the pandemic!
So, employment figures will have to be much higher than pre pandemic levels.
Now we understand what he meant by 'nowhere close to' rate rises.
4/
What does all of this mean?
Of course market is worried about high valuations and about potential rate rises killing it (cough cough 2000s dot com bubble)
..but the macro figures and reality does not necessarily equate to conditions of the internet bubble.
What does all of this mean?
Of course market is worried about high valuations and about potential rate rises killing it (cough cough 2000s dot com bubble)
..but the macro figures and reality does not necessarily equate to conditions of the internet bubble.
5/
Of course inflation will rise in the near term.
1. Oil prices have rallied significantly, contributing to inflation. Excl this, inflation is still low.
2. Consumer spending will, of course, rise. We have all been locked away for the last year & most of us have saved $$
Of course inflation will rise in the near term.
1. Oil prices have rallied significantly, contributing to inflation. Excl this, inflation is still low.
2. Consumer spending will, of course, rise. We have all been locked away for the last year & most of us have saved $$
6/
Much of these 'extra savings' will be spent...
...aren't we all wanting an expensive getaway/holiday or waiting to spend on something we have so desperately wanted to buy over the last year??
Much of these 'extra savings' will be spent...
...aren't we all wanting an expensive getaway/holiday or waiting to spend on something we have so desperately wanted to buy over the last year??
7/
This spending will contribute to inflation...
...but once those 'extra savings' are spent, we go back to normality.
This is what Chair Powell means by the rise in inflation not being sustainable.
This spending will contribute to inflation...
...but once those 'extra savings' are spent, we go back to normality.
This is what Chair Powell means by the rise in inflation not being sustainable.
8/
So yes, inflation will rise in the near term - but the Fed, and other central banks, will look through this.
At this point, growth is more important - most countries have taken on uber loads of debt and they really need growth to materialise.
So yes, inflation will rise in the near term - but the Fed, and other central banks, will look through this.
At this point, growth is more important - most countries have taken on uber loads of debt and they really need growth to materialise.
9/
Tightening financing conditions and restricting economic growth is NOT in their interest(s).
We recently saw this focus in the UK budget - which was sort of a *buy now pay later* moment .... It was a *spend now, tax later* budget!
Tightening financing conditions and restricting economic growth is NOT in their interest(s).
We recently saw this focus in the UK budget - which was sort of a *buy now pay later* moment .... It was a *spend now, tax later* budget!
10/
Focus is on Growth for now.
Once growth comes and remains, taxation can increase and *IF* economy goes into overheating mode, then financing conditions can be tightened.
..but we are not there yet.
Focus is on Growth for now.
Once growth comes and remains, taxation can increase and *IF* economy goes into overheating mode, then financing conditions can be tightened.
..but we are not there yet.
11/
Once the market digests this, we will see a rally in the stock markets again.
So, don't worry, ride this phase out.
...but do use this opportunity to have a think about your holdings.
Once the market digests this, we will see a rally in the stock markets again.
So, don't worry, ride this phase out.
...but do use this opportunity to have a think about your holdings.
12/
All stocks, whether quakity, undervalued, etc will get hurt in a meltdown.
...but the ones that get hurt the most are the ones where valuations are questionable.
All stocks, whether quakity, undervalued, etc will get hurt in a meltdown.
...but the ones that get hurt the most are the ones where valuations are questionable.
13/
Again, I'm not talking about how amazing the business is, but whether the price you are paying today for that business is reasonable.
Equity markets have ignored the valuation argument for a while now. But this is now coming back the fore.
Again, I'm not talking about how amazing the business is, but whether the price you are paying today for that business is reasonable.
Equity markets have ignored the valuation argument for a while now. But this is now coming back the fore.
14/
Products may be great, app reviews amazing and glasdoor reviews ecstatic. Sounds like a great business - but if it had barely any revenue and no near term prospects of earnings or cashflow, have a rethink.
Products may be great, app reviews amazing and glasdoor reviews ecstatic. Sounds like a great business - but if it had barely any revenue and no near term prospects of earnings or cashflow, have a rethink.
15/
Not all companies will be like Amazon. For every success, there may be a 100 failures.
Do make sure you are positioned right.
Not all companies will be like Amazon. For every success, there may be a 100 failures.
Do make sure you are positioned right.
16/
In summary I believe we will see a market rally in short order once the market digests what the Fed and other central banks (and politicians will prioritise) - growth not tightening.
In summary I believe we will see a market rally in short order once the market digests what the Fed and other central banks (and politicians will prioritise) - growth not tightening.
17/
But valuations remain high and before you know it, it'll get higher. There is no need to panic, for now at least.
But do use this opportunity to have a rethink.
Adiós.
But valuations remain high and before you know it, it'll get higher. There is no need to panic, for now at least.
But do use this opportunity to have a rethink.
Adiós.
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