US heading towards stagflation to avoid recession

Mathan Somasundaram

Deep Data Analytics

Local market started positive on US lead before it was jammed up on low turnover. All sectors were green except for yield sectors like Utilities and Property. Miners and Retail were the big movers higher. There was real pump going into some stocks to get the momentum traders excited. There is no risk tonight as US markets are shut for President’s Day holiday. Few fund managers used this safety net and really jammed up some small/micro caps. It will probably unwind tomorrow as the main cat among the pigeons is the bond market. Its selling off on reflation trade and bond yields are flying. Market multiples are going to get tested in the short term as bond markets flag reflation risk. US economy is drowning in cheap debt, low growth and structural problems delivering years of high unemployment. US looks to be heading towards stagflation and that will require substantial fiscal stimulus to keep the bottom half of the economy afloat. The political solution is to keep printing more money and delay the downswing while the economic solution is to let the cycle play out. History suggest that we will take the easy way out and we will lose control to inflation.

US 30 year long bond yield is now at pre pandemic level above 2%. Aussie 10 year bond yield is 1.32% after bottoming at 0.56% in the pandemic crash. That’s almost 3 rate hikes from RBA. RBA may be planning on layers of QE but that will have very little effect as US is moving into decade of massive fiscal deficits and currency debasement. RBA may be able to deliver more QE as a proportion of the economy but it is still holding a garden hose against the bushfire that is US Fed currency debasement. Similar to the rate cuts we have wasted, we are going to waste a lot of QE. After all it is trickle up economics being sold as trickle down economics. If QE strategy actually delivered economic recovery, Japan and EU wouldn’t be such basket cases. It’s a band aid short term fix that has become the standard central bank lazy weapon of choice. Much like Japan and EU, we will end up creating zombie businesses that last a few years more while stealing from savers and retirees for decades to come.

Japan delivered solid economic data today but they will continue to deliver more stimulus than drive reform and raise taxes. They are also going to be affected by the currency war in play by the US. Yen is going to get jammed up in the medium to long term like AUDUSD. Japanese manufacturing will struggle to compete. And they will revert to more money printing and BOJ buying everything from bonds, shares to property via ETF. Don’t worry…EU is not that far behind. European banks remain solvent while Germany writes checks. ECB will soon have to merge substantial parts of the European banking system and take shares in it. The socialization of the EU banks is inevitable and that will make it hard for anyone to leave the EU in the future.

Comments on US market last close > US market was negative all day on weak results and recent weak economic data before the end of day pump around 150 DOW points squeezed out a slight positive day. Bond yields are flying again with 10 year above 1.20% and 30 year above 2.00%. Reflation sectors like Energy and Financials lead the greens while yield sectors like Utilities were leading the reds. USD ticked up, Gold ticked down but Oil and Copper ticked up. European markets were also a weak positive. The comparison to last year’s cycle is scary. We are in the no man zone where we see seasonal weakness. The trigger point is always hard to pick but numbers are getting worse with reflation.

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

End of day market stats are on the attached link/pdf.


........
Deep Data Analytics provides this financial advice as an honest and reasonable opinion held at a point in time about an investment’s risk profile and merit and the information is provided by the Deep Data Analytics in good faith. The views of the adviser(s) do not necessarily reflect the views of the AFS Licensee. Deep Data Analytics has no obligation to update the opinion unless Deep Data Analytics is currently contracted to provide such an updated opinion. Deep Data Analytics does not warrant the accuracy of any information it sources from others. All statements as to future matters are not guaranteed to be accurate and any statements as to past performance do not represent future performance. Assessment of risk can be subjective. Portfolios of equity investments need to be well diversified and the risk appropriate for the investor. Equity investments in listed or unlisted companies yet to achieve a profit or with an equity value less than $50 million should collectively be a small component of a balanced portfolio, with smaller individual investment sizes than otherwise. Investors are responsible for their own investment decisions, unless a contract stipulates otherwise. Deep Data Analytics does not stand behind the capital value or performance of any investment. Subject to any terms implied by law and which cannot be excluded, Deep Data Analytics shall not be liable for any errors, omissions, defects or misrepresentations in the information (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the information. If any law prohibits the exclusion of such liability, Deep Data Analytics limits its liability to the re-supply of the Information, provided that such limitation is permitted by law and is fair and reasonable. Copyright © Deep Data Analytics. All rights reserved. This material is proprietary to Deep Data Analytics and may not be disclosed to third parties. Any unauthorized use, duplication or disclosure of this document is prohibited. The content has been approved for distribution by Deep Data Analytics (ABN 67 159 532 213 AFS Representative No. 1282992) which is a corporate approved representative of BR Securities (ABN 92 168 734 530 and holder of AFSL No. 456663). Deep Data Analytics is the business name of ABN 67 159 532 213.

1 topic

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...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.