Radar recap before the breakout

8 thg 6, 2022

PROFZERO'S TAKE - RADAR RECAP

Ever since the very first edition of our daily Parlay, Profs have repeatedly cited their radar to keep track of ongoing macroeconomic developments and forming views. It's about time then
for a first full-blown recap of what we are looking at right now, and how do we see the next steps moving:

• World politics: The war in Ukraine has reshaped European geopolitics, forcing the EU to rethink its entire energy supply and security policy off from Russia, other than bringing the continent back to reassessing the readiness of its armed forces. The blockade of the port of Odesa exacerbated supply-chain tensions that had been simmering since 2021, pushing commodity prices to all-time highs in energy and fertilizers and ushering the risk of famine and social unrest in the Middle East and Africa due to shortage of cereals and calories at large. Meanwhile, the relationships between the U.S. and China remain tense over Taiwan, as the island remains exposed to a potential Chinese invasion - Bearish
  
• Monetary policy: Central banks around the world have finally taken inflation seriously, launching interest rate hike and balance sheet trimming plans in an attempt to cool price surges and yet preserve growth and employment in the real economy. U.S. data in May were in fact supportive, with Main Street adding 390,000 jobs and keeping unemployment as low as 3.6%. Yet, the effects of higher interest rates are going to be felt only as they trickle down through the economy, in the form of costlier mortgages for homeowners and more expensive or altogether barred access to debt financing for sub-investment grade nations and corporates. As a result, defaults could sweep the economy, as already seen by the failure of Sri Lanka to pay its foreign-currency debt; the looming default of Russia; and the collapse back in 2021 of Chinese constructions giant Evergrande - Neutral
  
• Equities: The secular bull run hit by equities since the fall of Lehman Brothers in 2008, and fueled by loose monetary and fiscal policy on both shores of the Atlantic, hit a major stop in Q1 2022, when investors rushed to the door, spooked by the prospects of Regulators draining liquidity from the system. As a result, Nasdaq plunged 30% from peak (November 2021) to trough (April 2022), while S&P 500 only teetered on the brink of a bear market (negative 19.9% peak-to-trough). Investor fled Growth stocks whose profits are deep in the future, hence exposed to greater discounting by higher interest rates, favoring Value equities thanks to the solidity of their balance sheets and capacity to generate income via dividends. ProfZero argues that within the very Growth space, Value-like equities do already exists - tech giant Microsoft (MSFT) for instance is America's best-rated company (AAA/stable) - Neutral
  
• Commodities: After a lost decade, and crude oil trading even in negative price territory for one day in 2020 (April 20, WTI crude contract settling at negative 37.63/boe), commodities came back roaring in 2022, in what analysts at Goldman Sachs have already dubbed the beginning of a new supercycle. ProfZero concurs that commodities - and their supply chains - have been taken for granted for too long; now, in the wake of de-globalization talks, developed as well as emerging economies find themselves rattled by the prospects of unsustainably high - or even unaccessible - key commodities like fuel and fertilizers, or even worse calories. Thinking one step ahead, ProfOne has set its eyes on the minerals of the future - cobalt, lithium and nickel - reminding that these are also highly concentrated in a handful of areas around the globe, thus possibly falling into the same supply trap of the commodities of the past century - Bullish
  
• Blockchain assets: A unprecedented "crypto winter" has gripped investors in the blockchain space, first sending BTC from all-time at USD 68,990 in November 2021 to USD 25,350 on May 12, 2022 (63% peak-to-trough), then decreeing the collapse of Terra/LUNA project in just 3 days on the second week of May this year. Yet, the blockchain space is showing remarkable resilience, with BTC resisting further slides and in fact potentially preparing for a new "golden age", as foreseen by venture capital fund Andreesen Horowitz. ProfZero remains focused on the superiority of the blockchain as a technology, capable to shape the next decade in information processing, automotive, entertainment, finance and healthcare - Bullish