To our Clients, Friends and Colleagues,
Please take a read through these excerpts from some articles I read recently:
…”Picking up on this peculiar flow dynamic, Rubner wrote that “with money flowing into global equities “at extreme levels”, this would need to change before a larger correction can take place: I would turn bearish if the money slows or reverses” he said, adding that “portfolio rebalances of this size typically last for the full quarter (Q1 2022).”
But if Rubner’s trigger to turn bearish is the slowing or reversal of record inflows, then JPMorgan quant Nick Panigirtzoglou who publishes the popular weekly Flows and Liquidity newsletter, had some bad news earlier this week: according to the Greek strategist, the record tsunami of inflows is coming to an end….
…But while we aren’t there just yet, we may be as soon as next week: according to EPFR, last week saw a sharp slowdown in weekly flows to stocks, and after record inflows in recent weeks, the latest week saw just $2.2BN in inflows to equities as well as the 6th consecutive inflow to gold ($0.4 billion), funded by $11.8BN in outflows from bonds – the largest redemption since Mach 21- and a whopping $79.4BN from cash.
And while certainly concerning, BofA’s CIO Michael Hartnett spots some more concerning fund flows: in the latest Bank of America Flow Show, Hartnett writes that the market is starting to sniff out a coming recession, which is manifesting itself in the largest ($7.2 BN) inflow to Treasuries since Mar20……
…Needless to say, the market’s confirmation that a recession has arrived – with the usual 3-6 month delay from the clueless brigade of career economists and Fed officials – will mark a flush of new money into growth/recession plays, but until then – as Fed Fund forecasts keep rising on the back of hilariously wrong expectations – expect a continuation of the current trends including:
- soaring volatility (MOVE 72%),
- inflation winners: oil 50%, energy 35% & bank stocks 23%
- growth losers: bonds (bunds -9%), tech (Nasdaq flat, NYFANG -10%), EM stocks -15% (China -34%), long duration concept stocks, e.g. MRNA -17%, CLOU -29%, FINX -38%, XBI -44%, TAN -45%, ARKK -55%.
One final point: those who correctly time the transition from the current phase, which is still viewed by most as mid or late cycle, to upcoming recession in the second half, will make a killing this year.”…
The Fed cannot rescue markets while simultaneously trying to convince Washington that it is determined to fight inflation, slowing growth notwithstanding. In any case the pain threshold (if there is one) is much higher (lower asset values) than in Q4 ’18 imho. https://twitter.com/siddiqui71/status/1466813996288380943
Bingo The Fed is not in control of everything, never was really, but belief goes a long way. At most, the Fed can control some rates but that is at the expense of loss of control of everything else. Here, Inflation makes it difficult to even pretend control.
”If IZ is correct, and I think he is, then the S&P 500 2800 level is in play and a return to the 2000 level is not at all out of the equation.
The 2800 level would be a decline of 42%. That’s the minimum decline I expect from the top.
A decline to that level should be expected, not shocking. And it would not even make the market cheap by historical standards, just reasonably priced.”…
And lastly from this weekend:
“Credit Suisse’s Zoltan Pozsar Warns Of Another “Lehman Weekend” As Russia Sanctions May Trigger Central Bank Liquidity Flood”
Lehman weekend 2.0
Which brings us to the punchline of Pozsar’s warning: “there is no difference between Lehman unable to pay back money funds because its tri-party clearing agent is unwilling to unwind o/n repo trades, and banks unable to receive and make payments because they are out of SWIFT.” He then adds that the Herstatt risk – or settlement risk – owes its name to a mishap at a single bank, but “the risk in the current scenario involves an entire country’s banking system.”
And here comes Pozsar with another Lehman analogy:
Banks’ inability to make payments due to their exclusion from SWIFT is the same as Lehman’s inability to make payments due to its clearing bank’s unwillingness to send payments on its behalf. History does not repeat itself, but it rhymes…
The bottom line from Pozsar, and one which western leaders appears to have ignored in their pursuit of a unified statement against Russia, is that “the consequence of excluding banks from SWIFT is real, and so is the need for central banks to re-activate daily U.S. dollar funds supplying operations.”
Which is all very interesting when you consider the Corporate Profits Chart (Below) from our Q2, 2021 Market Update below indicating S&P at 2000 based on current Corp Profits level (Let alone a DROP LOWER in Corp Profits as the Recession bites hard and the S&P follows those lower ala 2008…) For your reference THAT Market Update can be found here: https://hkwmanagement.com/q2-2021-recap-market-update-powells-permanently-transitory-inflation-money-printer-go-brrr/
And then also the “Expanding Megaphone Technical Pattern” (Below) that we showed in our Q3, 2020 Market Update, which upon completion would ALSO indicate the downside support Trend Line (extended out) for the S&P at around 2000 (or lower) as well. For your reference THAT Market Update can be found here: https://hkwmanagement.com/q3-2020-recap-market-update-the-softbank-gamma-squeeze-last-stop-before-the-election/
Investing is a Journey, but it is “managing the risks” along the way that is the critical part.
For example, here is our “100% US Equities Fund” below. Notice how it was “protected” during the crashes in December 2018 and March 2020. In addition it has also avoided the beginnings of this current downturn and is OUTPERFORMING the “Broad US Markets Equal Weight Index” by +10.44% as of 2/18/22. You can access the Performance Charts for all 11 of our Fund Models here: https://hkwmanagement.com/model-fund-performance/
If your clients are in need of a “New Direction” of Investment Management and are concerned about the impending CHAOS that EVERYONE knows is coming, then please put them in touch with us to “Preserve their Wealth and Protect their Capital”.
We can help anyone at any level in any arena, if it can be invested we can manage it.
However, our “Specialty” areas are “Corporate Cash accounts, Pension Plans and 401(k)s for your closely held and Family owned Businesses” along with any needs that the owners of said businesses may have in their personal wealth.
“Got Protection? We Do.” and we are here to help…