Very interesting and confusing market environment. Jotting down a few notes here to brainstorm what is going on and where i think potential opportunities are. open to any and all feedback/pushback...
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Everyone knows the indices are being held up by 5 names or so. beneath the index anything 'high multiple no earnings' tech; anything SPAC or de-SPAC; anything YTD winners; and commod cyclicals/retail have been torched.
First lets do growth/high-multiple tech ('dream tech'). With Powell in hike mode and rates still uber low and zero valn support, there's literally no floor here. many of these stocks are -50% from their highs but could fall another 80% and still be v expensive. analog is 2000...
...and unless you think Powell is forced to backflip and abandon tightening i don't know how you try to decide where to get involved. much better to add to shorts into strength or cut and run further (in my view).
but why are cyclicals getting killed?
but why are cyclicals getting killed?
this is quite interesting. the yield curve is massively flattening and some think it will invert. traditionally a sign the economy is gonna roll over- hard, and soon.
this is basically why cyclicals/eco sensitive reopening winners (retail etc) have been flushed last cpl months.
this is basically why cyclicals/eco sensitive reopening winners (retail etc) have been flushed last cpl months.
basically bond mkt is telling equity mkt that Fed has/will lose control and push economy into recession.
never mind the fact that economy is straining at full employment, housing demand is insatiable, and tons of other goods (cars)/commods are sold out for 2022...
never mind the fact that economy is straining at full employment, housing demand is insatiable, and tons of other goods (cars)/commods are sold out for 2022...
this is where the rubber meets the road. many commod stocks are trading at 1-3x current earnings (EBITDA), w v clean balance sheets. essentially the mkt is telling you, not only will pricing go to mid-cycle levels, but will fall massively BELOW mid-cycle - VERY QUICKLY.
Its the only way terminal values make sense (ie lots of these names, coal, oil, fertilizers, steel, etc, need to start burning cash v v quickly).
That is certainly possible, but starting from zero rates?
and in a matter of months? I just don't see it
That is certainly possible, but starting from zero rates?
and in a matter of months? I just don't see it
in other words im defaulting to a repeat of 2000: tech gets killed and keeps getting killed; 'value' (call it what you want) does great due to both rotation and the real economy holding up.
this presumes Powell doesn't throw the brake hard (100bps raise etc) which seems unlikely
this presumes Powell doesn't throw the brake hard (100bps raise etc) which seems unlikely
open to other interpretations/thoughts, as always 🙏🙏
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