After the noise of Summers has gone....
MBMG Investment Advisory Report and Outlook Summary
Those days are gone forever….
In last month’s backdrop, we expressed concerns about how long the rally in risk assets, which we considered to be unconvincing, could continue. We didn’t have to wait long for the answer. By the middle of August, the NASDAQ had rallied a further 6% and the broader S&P 500 a further 4.5%. However, by the month end, these ephemeral gains had been given back plus further losses of over -3.5% on NASDAQ and -4.2% on the SPX.
This ties in with views expressed in my Bloomberg appearance at the end of May, when the spoke of unconvincing ebbs and flows in markets trying to rally built on unsound foundations and starved of liquidity.[1]
We made the point that markets were dancing a drunken Lindy Hop dance to an out of tune, accompaniment by The Fed with chaotic changes of time signature. The late July to mid-August rally was mainly built on FOMC chair Powell’s incoherent but highly telegraphed pivot from being determined to drive the economy off a cliff to promising that he wouldn’t, if the data told him not to:
The FOMC arrive in the nick of time in order to explain to the lorry driver that really there’s plenty of room ahead and nothing to worry about
The FOMC even gave themselves for credit that the scale of economic damage is so great, it must mean that their fight against inflation is clearly working.
This confused thinking was extremely unlikely to ever produce a ‘Goldilocks outcome’.
By mid-August, markets started waking up to the twin realisation that the damage wrought by US policymakers wasn’t yet nearly enough to trigger the much-heralded policy pivot and that the economic dangers were greater than they’d previously been led to believe.
As we noted last month
“it is possible that the feelgood factor of Chair Powell’s soothing words may be enough to boost the markets for some time – maybe even until the FOMC realise how bad things are and start to reverse their policy of attacking supply problems by demand destruction.
But we wouldn’t want to rely on that.
It’s possible that everything will align so that inflation dies a death before the Fed damage the economy beyond any easy or fast repair, that the FOMC are sensitive to this and that we see much looseer Powell movements.
It’s possible.
But to us, it seems unlikely.”
It so happened that at the time that markets were, as we now know peaking, Paul explained many of the key themes dominating our investment outlook in his appearance on CNBC’s Asia Street Signs on August 17th. While a great deal has happened in the intervening fortnight, the themes remain intact. We have summarized these in this month’s.
Please email us to request a full copy at info@mbmg-investment.com
About the Author:
Paul Gambles is licensed by the SEC as both a Securities Fundamental Investment Analyst and an Investment Planner.
MBMG Investment Advisory is licensed by the Securities and Exchange Commission of Thailand as an Investment Advisor under licence number Dor 06-0055-21.
Do you have any questions? Do not hesitate to contact me directly by email: Paul@mbmg-investment.com
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1. While every effort has been made to ensure that the information contained herein is correct, MBMG Investment Advisory cannot be held responsible for any errors that may occur. The views of the contributors may not necessarily reflect the house view of MBMG Investment Advisory. Views and opinions expressed herein may change with market conditions and should not be used in isolation.
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[1] https://www.bloomberg.com/news/videos/2022-06-01/mbmg-group-s-gambles-is-long-treasuries-video