Ex - First you are a very bad, bad boy. Writing on your holiday! That is a big, big no! Having said that I enjoy your take. One possible correction, Italy has a general election in June 2023. We both have been waiting for the ripping short covering. It is hard to know what it means, but a 10% at least off the lows, and possibly more seems obvious. Of course, it already 7.6% up, so maybe we can get even bigger. 15%? It strikes me that you must keep feeding the intensity of inflation/Fed reaction each day to keep this as worry. We seem to have reached the point where the intensity is beginning to wane, and now with cuts priced in to curve next year, this is helping. Finally, I am not sold on recession, or if there is a downturn, it strikes me as possibly on the mild in. While true you never know who is swimming naked until the tide goes out, ahead of the Dotcom and housing bust, we knew there was valuation vulnerability (2001) and egregious leverage (2008). While there could be a surprise now it’s hard to think about what that is. We seem to be back in the old, old fear, that the Fed causes recession, which they really have not done for a long, long time, no matter how many people insist that is what is happening. Of course, there is one thing I do constantly worry about which is the negative convexity beast that is the equity market, fed by dominance of passive investing, which as a style I feel is peaking but also is a source of systemic risk. I cannot completely rule out a 90% decline, which forces authorities to close the stock market for a month, a crisis in ETFs ect...Sorry went a bit dark there, but that is purely in my imagination of crazy tail risks....Now Ex--drink wine, eat pasta, view the sites. the market awaits your return....
Risk - I know better than to write on holiday but my family sleeps so late I usually have a couple hours to enjoy the vista, sip a cappuccino and write. I have a strong feeling that the economy and earnings will hold on better this year than the market thinks and we could get a rip higher. The lags on all of the policy changes I think will hurt early next year, and since I do not think the market is as forward-looking, we get a bigger wave lower then. This is because of the same passive influence distorting the markets as you mention. The market microstructure is certainly an issue.
First thing I read this morning and likely the best thing I read all of today. I love your optimism re: the markets based on the signs you are seeing. Enjoy your vacation and the Tiramisu, the caffe, the gelato, the pizza margherita, carbonara, lasagna and of course the multiple digestivos!...shoot...now I am hungry. heading to the kitchen for a pre-breakfast snack.
Ex - First you are a very bad, bad boy. Writing on your holiday! That is a big, big no! Having said that I enjoy your take. One possible correction, Italy has a general election in June 2023. We both have been waiting for the ripping short covering. It is hard to know what it means, but a 10% at least off the lows, and possibly more seems obvious. Of course, it already 7.6% up, so maybe we can get even bigger. 15%? It strikes me that you must keep feeding the intensity of inflation/Fed reaction each day to keep this as worry. We seem to have reached the point where the intensity is beginning to wane, and now with cuts priced in to curve next year, this is helping. Finally, I am not sold on recession, or if there is a downturn, it strikes me as possibly on the mild in. While true you never know who is swimming naked until the tide goes out, ahead of the Dotcom and housing bust, we knew there was valuation vulnerability (2001) and egregious leverage (2008). While there could be a surprise now it’s hard to think about what that is. We seem to be back in the old, old fear, that the Fed causes recession, which they really have not done for a long, long time, no matter how many people insist that is what is happening. Of course, there is one thing I do constantly worry about which is the negative convexity beast that is the equity market, fed by dominance of passive investing, which as a style I feel is peaking but also is a source of systemic risk. I cannot completely rule out a 90% decline, which forces authorities to close the stock market for a month, a crisis in ETFs ect...Sorry went a bit dark there, but that is purely in my imagination of crazy tail risks....Now Ex--drink wine, eat pasta, view the sites. the market awaits your return....
Risk - I know better than to write on holiday but my family sleeps so late I usually have a couple hours to enjoy the vista, sip a cappuccino and write. I have a strong feeling that the economy and earnings will hold on better this year than the market thinks and we could get a rip higher. The lags on all of the policy changes I think will hurt early next year, and since I do not think the market is as forward-looking, we get a bigger wave lower then. This is because of the same passive influence distorting the markets as you mention. The market microstructure is certainly an issue.
First thing I read this morning and likely the best thing I read all of today. I love your optimism re: the markets based on the signs you are seeing. Enjoy your vacation and the Tiramisu, the caffe, the gelato, the pizza margherita, carbonara, lasagna and of course the multiple digestivos!...shoot...now I am hungry. heading to the kitchen for a pre-breakfast snack.
Thanks Beach! I am certainly enjoying the vacation - food, wine and vistas.