IWM

The bull is strong yet!

We saw some fear and panic… for about a whole week. Well, in truth, the institutional money didn’t even flinch. The market bounced hard. The Evergrande situation unfolding in China is still rather risky, although it seems that the CCP are doing a rather good job at a ‘controlled demolition’. They might be making an example of Evergrande in an effort to cool off property speculation in general. There have also been some large repurchase agreement (repo) activity over the weekend, which is indicative of monetary stimulus measures to prevent contagion into other sectors. For now it seems, with some help from central banks (as usual), that the bull is strong yet!

It might get a little bumpy

Last week we pondered the idea of hedging longer-term portfolios for some downside protection. We also looked at a few instruments that could easily be added to your portfolio in order to provide that protection. This week we do not really have much to add, other than to reiterate the warning given last week. We think that it might get a little bumpy over the coming weeks. Thus we are happy to sit with some short protection and wait for better setups.

Nothing to see here

Sometimes markets can be fairly boring. Well, that very much depends on where you look, but if you are looking at the major indices now, things seem fairly boring to be honest. The market keeps grinding higher on better and better looking market fundamentals. Sure at some point the tapering will start and we’ll all suddenly wake up and realise that inflation was not transitory afterall…

No tapering until November?

So the much anticipated Jackson Hole symposium is over and believe it or not, the wheels did not fall off. Fed chair Jerome Powell was rather dovish in fact. Although he said that the process to begin tapering can begin, he also implied that there is not set (or anticipated) start date. Thus the market infers that there will be no tapering until November. In the meantime, the delta-variant of the covid-19 virus still poses the most immediate risk in the form of further global lockdowns and supply chain disruptions. It seems that the central bankers will remain ‘accommodating’ until they feel this threat is no longer a threat. Apologies to the next generation that has to foot the bill.

Jackson Hole week

All eyes are on Jerome Powell and the Jackson Hole symposium this week. Jerome Powell is expected to talk on the 26th of August and the market is waiting to hear when we can expect tapering. Although tapering the does not mean a sudden and abrupt end to QE, the market certainly will pretend that it does up until the very minute that it actually happens. We think it is almost inevitable now that we see some tapering by the end of the year. This does not mean that we see interest rate hikes, or a complete end to bond/asset purchases by the FED. It does mean though that the rate at which they are providing liquidity to the market will slow down. This could cause a bit of a speed wobble and some risk-off sentiment.

Setups are sparse

excited about. Overall though, we expect the week ahead to be ‘risk on’. At least for the developed world. South African markets might be facing its own headwinds and continued currency fallout as a result of the cabinet reshuffle last week. Setups are sparse, so play defense and don’t try to force trades that are not there.

Mixed signals

As anticipated, the FOMC made no changes to interest rates last week and are unlikely to make any real moves without very clearly communicating it to the market. Our focus now shifts to the Jackson Hole symposium to be held near the end of the month. We think that Jerome Powell will likely use Jackson Hole as the platform on which to start communicating tapering warnings to the market. At some point the FED must admit that the printing is creating inflation. Although it will likely not do so directly, we can watch the language use around the topic. It was interesting to note that Powell essentially admitted that he does not know ‘where’ inflation is coming from. He also stated that inflation is likely to stay around longer than initially anticipated.

The BTFD crowd win again

markets) seem to be very attractive ‘underperformers’ that seemingly offer a huge amount of value. Generally the thinking is that we are entering into a new global growth phase and that the underperforming emerging markets ‘should’ catch up to developed markets. That is an enticing narrative and one probably worth positioning for. However, there are some warning signs that are not going away and are difficult to ignore.

Support KZN this Mandela Day

The events of the last week have been nothing short of horrific. But once again, we have shown that the South African spirit cannot be broken! People of all kinds have rallied to not only protect their communities and loved ones, but also to rebuild, repair and bring support to those most severely impacted by the attempted insurrection. Our ability to indiscriminately band together in the face of adversity is perhaps our nation’s greatest strength. And to that end, I want to use this week’s post to encourage you to support KZN this Mandela Day.

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