Never weak again and always euphoric!

Never weak again and always euphoric!
Never weak again and always euphoric!

A little over two weeks ago, the fear of STAGFLATION was among us and the financial markets suddenly had doubts about the ability of the world’s stock markets to keep up with the Bull Market in which we had been since November . We no longer dared to imagine lowering rates in 2024 and the forecasts made over the past 7 months no longer seemed to mean much. And then something happened. The FED has spoken. From then on, everything changed. Not only have the markets started to rise again, but the FED’s speech is now used in every way to support the theory of the market which will never fall again.

The Audio of May 13, 2024

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The magic of the FED

When Powell spoke in early May, there was nothing revolutionary about his speech – on the surface – but as the days passed, things became clearer. The FED press release was becoming THE SOLUTION to all ills. A bit like an African marabout who can do anything. From the return of your loved one to changing the winter tires on the family car. We may not have realized it immediately, but as the days passed, things became more obvious: the FED is our friend and it will do everything in its power not to let the markets.

In the space of a few weeks we went from “FEAR OF STAGFLATION” to impatience to see new altitude records arrive for the American indices. Records already fell last week in Europe and even Switzerland seems to have woken up as if its largest components had officially established themselves as Nvidia’s main competitors. Since last Friday, we no longer even ask ourselves the question of whether we will reach new records on the S&P500, the question is rather whether we will reach new records BEFORE or AFTER the publication of the figures for inflation forecast for Wednesday.

Inflation isn’t even that high anymore

However, the funny thing about the psychological analysis that we have been able to make of the markets in recent days is that inflation is no longer as important as it was in recent months. We clearly understood that it would not be easy to bring it back to 2% as the central banks want – and I even believe that even the central banks have understood this and that they are looking for other ways to apply their influence on the markets – and as we all know that inflation is not going to disappear like a miracle while energy refuses to fall and the median price of mortgages is up 78% over three years in the USA. We were going to have to find a solution to energize the Bull Market and FINALLY get the Dow Jones past 40,000 and this means is the weakness of employment and the possible return of the FED’s PUT.

The markets have therefore been “smarter” than the average and once explained, the logic is implacable: if we base ourselves on the multiple speeches of Powell and other members of the FED over the last six months, the central bank American wants:

1) See or have evidence that inflation is heading towards 2%
2) Realize that employment is slowing down

It is under these conditions and only under these conditions that Powell and his friends will lower rates. Falling rates which is – I remind you – the fuel necessary to justify the rise in world stock markets since November. But you knew that. Until the beginning of May, we had been obsessed with inflation. This was the key to unlocking the cycle of rate cuts according to Powell. Except that according to the latest news, even with all the best will in the world, inflation no longer wants to fall. It has even been going up for 4 months (in the USA in any case).

However, since the first Friday of May and the employment figures – the Non Farm Payrolls – we have found a new reason to dream. And to activate this “new reason to believe in it”, we had to delve into the latest message from the FED and refer to point 6 of the latter. In this very specific place, the FED specifies that it is “possibly” ready to lower rates, ignoring inflation, ONLY if the job market were to weaken. Before it was the joint condition for a drop in inflation, but from now on it can also be a JOKER! And that’s good, since the latest employment figures show that things are FINALLY slowing down!

The first drop in September

Suddenly, the rumor spread like wildfire: if employment continues to weaken, the FED will be there to help us. And as IN ADDITION to NFP’s, Jobless Claims also showed signs of slowing down, we might as well tell you that the door was open to all windows and, while no one dared to bet on a drop in rates before December, here is the “probability of seeing rates drop in September ALREADY (!!!)” has resurfaced!

Since the last FED meeting, we have regained faith in the future and faith in the FED which is definitely our best friend. The press release has been read and reread millions of times by millions of people and it has almost become bedside reading for the perfect little financier. Never has a FED speech been reread and reinterpreted so much in two weeks! In any case, in recent days, we have been able to make the most of it and nothing seems to be able to stop us, the Bull Market has regained power because employment is low and it is even argued that the FED could having put in place a new PUT from the FED. The good old theory that the markets risk nothing because if the economy goes south, the central banks will give us a good old “WHATEVER IT TAKES” to save the market. Fear is therefore relegated to the back of a cupboard and all we have to do is let ourselves be carried to Wednesday’s CPI figures to set new historical records on the indices. And since records are made to be broken, the rest will only be bliss. And then, IMAGINE if the CPI shows signs of weakness because we managed to swindle a figure or two in this component… that plus the FED put and the job market which is slowing down, we go straight to 6,000 on the S&P500, without going through the start.

In Asia this morning

Most Asian stocks are doing nothing this Monday morning. Chinese stocks have been pressured by the prospect of higher U.S. tariffs. Last week, several reports indicated that the Biden administration was preparing to impose new tariffs on several key sectors, including electric vehicles and solar energy technology. Just to create a bit of protectionism. Globalization is good, but only when it goes into your pocket.

For the moment, the Nikkei is down 0.03%, China is down 0.08% and Hong Kong is up 0.38%. But I might as well tell you that while waiting for the inflation figures in the USA and Germany this week, no one is going to want to take the slightest risk until we see things more clearly – even with the FED’s put in our pocket. Oil continues to melt like snow in the sun and this morning it is trading at $78.06 – another good sign that inflation will eventually fall. One day gasoline WILL be cheaper at the pump. I just hope that it won’t be the day when thermal vehicles are banned. Gold is at $2,363 and Bitcoin is in a coma at $61,000 and counting, waiting for the next wave of speculation which will project the crypto-star to $150,000.

Today’s news and figures

We can’t say that we are drowning in financial news this morning, everyone has their eyes glued to the economic figures for the week. Today we will have the New York FED which will publish consumer expectations for the next 12 months. We might as well tell you that no one really cares about consumers’ opinions, since last Friday we already had a figure from the University of Michigan which suggested that Mister Consumer is in the process of deflating, but since that we have rediscovered the FED’s PUT and the fact that employment is slowing down, the fact that the consumer is the engine of American growth no longer concerns absolutely anyone.

For the moment, futures are virtually unchanged, but it seems that nothing can stop the march forward of the world’s stock markets. Exit Stagflation, exit recession, we live for lower rates and that’s it!

If anyone is interested, this evening there will be a webinar at Swissquote with Marco Rastaldi and myself. Live at 6:00 p.m. We will talk about investing and we will answer all your questions. It’s free and registration, it’s here

Until then, I wish you a great Monday and we’ll see you again tomorrow morning at the same time here, or this evening!

Thomas Veillet

“We don’t have an analytical advantage, we just look in the right place.” —Seth Klarman



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