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Perma-misery is too simple

Updated: Oct 31, 2023

I just don’t buy the likes of perma-misery ridden David Rosenbergs line that 100% of

the rally in the S&P 500 YTD has just been short covering.

Nutstuff thoughts and positioning is clear but I get the froth here and I remain clear that if I woke up and my +28% was +20%-25% in a couple of days I frankly wouldn’t be surprised.

My concern in the short term is absolutely that we are at a wobble phase, here I fully agree with Jamie Douglas: Wobbles are being brought on by poor returns and underperformance against the soaring Equity Markets.(pictures below of recent bifurcation).

Sure, you can throw in worries about Central Bank messaging, Covid, China, Energy et al. But the wobble started a few weeks ago as anyone short Rates started to fold their losing hands. Yes very good reasons to not like bonds, but when everyone feels the same (the 10-yr currently yields 1.45%, and with inflation at 5.5% or >this means that the government will

pay an investor back just 66% (in real terms) of what it borrowed at the end of the 10 years.)

Call me old fashioned. Who knows if this loss in confidence looks capable of causing an Equity dip. Again, I’m afraid I see it as the dip to buy (but am very clear about what I would and would not buy) as frankly what else do you do with your money? Mr Rosenberg I hope read my Monday “Wake up Fund managers” piece its directed at people like you!

Someone also just flagged some work on hedge fund Returns data yesterday which suggested Macro is now down on the year, Long Only is “only” up 16% against the SPX benchmark of 24%. This really surprised me given most are bullish Equities and Bearish Rates. Amazing how many smart people have been caught on the hop.

Nutstuff was clear a few weeks ago when on subject of rates and the Fed, as long as

the Fed can buy long term debt with impunity, it will and it will fix long rates independently of inflation.

A simple relationship must hold for growth to remain positive, the increase in aggregate credit must exceed five times the increase in aggregate income and over time the “five

times” must drift higher due to the decreasing marginal utility of credit.

If the Fed is ultimately forced to accept higher inflation as the cost of financial repression, then real rates could fall further, much like they did during the 1940s. This creates an opportunity for gold and silver, not to mention Bitcoin.

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