FOGO is the new FOMO

Mathan Somasundaram

Deep Data Analytics

Local market was once again boosted by global investor buying on asset allocation trade in relatively weaker volume. The month end adjustments in asset allocation is playing out in the first week of Feb…similar to last year. It is clear the global passive money is moving to adjust for reflation (i.e. selling bonds and buying equities) and adjusting for EURUSD decline (i.e. money moving out of Europe). Expect this trade to play out for a few days. Property and Health Care were the best sectors while Miners and Tech were the only negative performers. Local fund managers are struggling buy into the market but too scared to take profit. Fear Of Getting Out (FOGO) is a real hostage situation. Most have outperformed due to massive money printing and multiple expansion beyond historical levels. Like most investors, they did not see the risk coming last year and they did not see the level of bounce and now they are not confident of where they are….so they are going to ride it and hope it holds together. Risk management is an undervalued skill in investment. Fear Of Getting Out (FOGO) is a crowded risky trade but it is holding major investors hostage due to performance fees.

RBA has done it again. Another shocking timing for stimulus. QE 2.0 was announced earlier than expected to help governments election cycle and to keep bond yields from running away on reflation. It worked for 24 hours before the biggest gorilla playing currency wars turned up. USD bounced on EUR downgrade and that took down AUDUSD….more of that to come in the short term. 10 year bond yields fell from 1.17% pre announcement to 1.13%....but its back to 1.17% today and looking to climb as US reflation drives global bond markets lower. Don’t worry….there is a equity market panic coming and that will drive down AUDUSD and bond yields in the short term….but they are both going to fly in the medium to long term as US plays currency wars. We are also seeing China take the foot off stimulus and Iron Ore has fallen below US$150. More short term risk off coming. RBA cold have just stayed on the sidelines and come in later when it’s really needed. RBA basically said job market recovered well but still very weak. No wages growth or rate rises for years. Basically they are going to take returns from savers, retirees and investors and hand it off to zombie business to deliver bigger bonuses for years to come. This is the new capitalism. Socialize the pain and capitalize the gains.

Let us look at a few signals…

  1. USD keeps climbing as EU downgrades and takes down EURUSD…risk off trade?
  2. US 10 year bond yields continue to rise despite stimulus and pandemic issues…reflation taking over?
  3. Aussie 10 year bond yield hits post pandemic high despite RBA’s QE 2.0…reflation taking off?
  4. AUDUSD is breaking down due to USD breaking up and Iron Ore falling…not RBA’s QE 2.0…another badly timed move when it was already in play…risk off?

Comments on US market last close > US market had another solid day up on global investors moving from Europe to US as Euro breaks down after downgrades and lockdown extensions. EUR weakness has USD on a ramp up. USD is pushing all other currencies lower...AUDUSD is on the edge of going below 76 cents. Commodities are weak on the flip side while Oil was positive on inventory down and more output cut hopes. DOW leads NASDAQ, then S&AP and then RUSSELL. Banks and Retail lead the moves while WSB bets were unwinding. Retail punters learning the pump and dump cycle that has been bread and butter for institutional investors. UK pandemic has found that the Kent variant has the E484K mutant that makes vaccine efficacy low. That was the issue with SA and Brazil variants. We know UK variants have spread everywhere...US to EU to Asia to Aus. If that mutant variant starts, vaccine will not hold the tide. 2021 has the same trend as 2020 so far. Start the year up on hope and then Europe downgraded. Then virus took over. This year we can add reflation and massive debt to the mix. Iron Ore has fallen below 150 and China is taking the foot off. Remain cautious and pragmatic till dust settles over the next few weeks.

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!

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Founder & CEO
Deep Data Analytics

Over 25 years’ experience in the finance/tech industry. Mathan has worked extensively in all parts of the finance sector (i.e. County NatWest, Citi, LIM, Southern Cross, Bell Potter, Baillieu Holst and Blue Ocean Equities). Currently Founder and...

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