The intimate (and bizarre) relationship between technology and 10-year performance (PG-13).

If we delve into the classical economic literature of the last 100 years, if we try to understand the principle of asset allocation in difficult times and to adequately assimilate the links between growth, value and interest rates, there is one thing that will stand out quite surprisingly, and it’s the fact that growth stocks – in other words, anything that comes out of new technologies and new things that we don’t really understand – tend to move in the opposite direction of bond yields. While it was necessary to experiment to apply the practice to confirm the theory, yesterday’s session seemed to be ideal as a textbook case.

The audio of April 14, 2022


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Stop to returns

We will not lie to each other, nor will we put our heads in the sand. Inflation is still there, very present and straight in her boots and absolutely nothing has changed since yesterday. There was also the PPI – producer prices which increased by 11.2%. This is the biggest increase since November 2010 and follows a 10% increase in February.

Economists had predicted a 10.5% increase. Suffice it to say that once again they have completely failed in their predictions, so much so that one wonders if the boys are not completely drunk when they do their math. This increase (of course) is not surprising given the inflationary context: we are brainwashed enough to be remembered, as the topic appears in the financial media about 834 times a day per day in 12 different languages, but the pace of its acceleration was faster than expected. Which should have been bad for the market, just like yesterday’s CPI. Except that in the wonderful world of finance, investing and the art of making money, what is obvious … is obviously FALSE.

Inversion of returns

As mentioned at the beginning of this column, when the 10-year yield goes up because we are betting on future rate hikes and runaway inflation, the tech sector is (generally) gleefully messed up as everything the world thinks if we calculate the value of the money invested for the next 5 years compared to the risk-free rate and the age of the captain, divided by the level of polls in favor of Grandpa Biden, close to zero, therefore negligible in the calculation, the technology that lives and performs from its growth is suddenly less interesting. That’s right, after all if you take a guy who put $ 100,000 into US Treasuries 22 years ago and compare it to a guy who put $ 100,000 into Apple, he’s 22, you’ll see there’s no photo.

One is still working and rowing to pay taxes each year and the other is in the process of buying a yacht for the summer vacation. I’ll let you tell me who is who. That said, yesterday, after a near-vertical rise in 10-year yields since the beginning of March – which took the yield from 1.7% to 2.7% – we sneaked up from 2.78% to 2%. , 68%. All because a FED guy named Waller judged based on his own personal judgment and his psychic’s crystal ball – that inflation had probably peaked – which was okay. still be complicated this spring for some reason I don’t know, but which is probably related to the phases of the moon – but then it would be better. Because we tend to have a goldfish memory and the ability to turn our jacket faster than a weather vane in high winds, yields have dropped 0.10% and everyone has jumped on the tech that gave us a pretty spectacular bounce on the Nasdaq. and especially on the SOX that did a flip EXACTLY where it was supposed to according to the technical analysis books!

The season has begun

While techno lived its best life bouncing at the speed of light like a chamois in the Valais mountains on the day the hunt was closed or alcohol was banned WHEN the hunt, which inevitably caused the hunters to disappear, as alcohol-free the interest of hunting disappears instantly. European markets did nothing as they were still “worried” about rising inflation and only moderately appreciated Yellen’s comments on fears of a recession in Europe due to the war in Ukraine. All this within hours of the intervention of Dame Lagarde, who will have to justify her lack of reactivity to the inflation that is soaring in the euro zone – well, except in France, because in France there is the McKinsey colt that has to renew. the rent at the Elysée and it is better not to give the real figures to the French because they believe for another two minutes that this arrogant idiot can save his ass in the next 5 years.

While Europe was concerned and hesitated, as trading pundits spotted a new relationship between the 10-year yield and the Nasdaq – a relationship that can be calculated as follows: If the yield falls by 0.10%, the Nasdaq rises. 2% – we were starting to analyze the first quarterly data. The first to clean the plaster was JP Morgan. The US bank announced a terrible quarter with a 42% drop in its revenue, all because trading was less easy, inflation wasn’t helping them, and the war in Ukraine was bad for business, especially for their Russian clients. who operated there. In short, the numbers weren’t terrible and the comments following the announcements were generally pretty depressing. Result: the stock loses 3.2%. Elsewhere, BlackRock did nothing but beat analysts’ expectations, while Delta reported better-than-expected numbers, with a loss of just 1.23 cents per share (while Wall Street pundits expected 1.17 cents per share). dollars). ).

But what should be remembered above all about Delta’s data is that the management’s comments spoke of RECOVERY in air transport !!! And this is THE NEWS WE ARE WAITING FOR. Well, to be honest, we didn’t expect that, just imagining that people were getting back on the plane and that we were offering them to do it without putting on a mask and breaking his nose 27 times before getting on. on board motivated investors, and the Delta share price rose 6%, as did the entire aviation industry. Suddenly, there are also people who said to themselves that perhaps it was time to buy back the transportation sector in general and all of a sudden, Dow Jones Transportation confirmed the same kind of perfect, perfectly placed bounce on the supports as it did yesterday as well. SOX.

In summary

If I have to simplify yesterday’s session; the economic numbers showed that inflation was still under control like Jurassic Park’s T-Rex, but there were central bankers reading coffee grounds who thought we had seen the worst. That this fact pushed yields down and the Nasdaq up. Suddenly, the SOX is back where it needed to be. That the war in Ukraine will become the number one excuse of the quarter for any company that gets its numbers wrong (like JP Morgan yesterday), the number two excuse is inflation. And finally, people are flying again and maybe the transportation industry isn’t completely messed up like we’ve been told many times lately. We would therefore have made a mistake in our predictions, which seems unlikely anyway.

Asia, oil and Bitcoin are on a boat

Asia is on the rise this morning to celebrate all the good news I just mentioned. Japan recovers 1.26% encouraged by American technology, China and Hong Kong recover 0.5% because finally, COVID, we don’t care. And oil continues to grow because China is planning to get out of the block, which will increase demand.

And if you combine the increase in Chinese demand with the problem of the 7 million barrels per day usually supplied by Russia, there is no need to do calculations and mining school to realize that there will be a shortage of oil somewhere and that if Russia’s 7 million barrels end up being sold to China, Grandpa Biden will make his dentures creak and that won’t help anyone. Suddenly, the barrel rose. As I speak to you, after my 84th coffee at George Clooney, the WTI oil version is trading for $ 103.95, not to mention $ 104. And I remind you that above $ 100 ……… is a RE-DISPOSAL sign !!! Meanwhile, gold is at $ 1976, as since yesterday everything starts to rise again without distinction, the concept of safe haven or racism against gold. Even Bitcoin, which was on the verge of collapse yesterday and which, according to experts, should have fallen to AT LEAST $ 30,000, has finally recovered 5% and is trading at $ 41,500. Bitcoin bouncing exactly where it was supposed to, like the transport Dow Jones, like the SOX …

Daily News

The Americans released 800 million for Ukraine in the form of artillery and combat helicopters. The flagship of the Russian fleet is sinking, following an accident according to the Russians and following the launch of missiles according to the Ukrainians. Jamie Dimon sees the clouds gather over the economy in the coming months. WHO still sees COVID as the number one threat to the world population, Greeks over 60 who are not vaccinated will be fined 100 euros a month until they get vaccinated. Magnificent proof of freedom offered by the Greek government, we are delighted that Macron will implement it as soon as he is re-elected to block the national front.

Jim Cramer returns to semiconductors. Sierra Oncology takes 40% from the announcement of an acquisition by Glaxo. Canadians and New Zealanders raised their key rates more than expected to cope with the specter of inflation. Koreans too. And the US, as a country of the free, just sentenced a cryptocurrency expert who lectured on Blockchain in North Korea to 5 years in prison when the State Department forbade him from doing so. . According to the judges and the land of the free, by going there, he would endanger the whole country. On the other hand, the bedridden White House does not endanger anyone, he …

Numbers and futures

For now, futures are up 0.25% and we could finally end the week well. There will still be the ECB to review this afternoon, as well as data on unemployment claims. There will also be quarterly publications from Goldman Sachs, Citi, Wells Fargo, Morgan Stanley and, for a change, the banks: Taiwan Semi’s and United Health.

As for me, I wish you a happy Easter weekend, that the bells ring, that the rabbits are caught and that the eggs roll. Hopefully the tofu that will replace lamb this year is drinkable and we will meet again next week to see how we survive all of this!

Thomas Vellet
Investir.ch

“Never let fear of hitting stop you from playing. “-Babe Ruth

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