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Weekly Update

Weekly Update 3-Aug-2022

  • Irrational markets always win the day (but maybe not tomorrow)

  • Earnings really are not that great

  • Short covering comes in many forms

  • Inflation leads to recessions…just in case you forgot

  • Job Openings are disappearing

  • More signs of a global slowdown

  • The Fed keeps talking but nobody is listening (again)

  • Oil news confounds the markets

  • Quick Hits

  • Chart Crime of the week

John Maynard Keynes had it right when he talked about the markets remaining irrational longer than you can remain solvent (or sane really).  The economic data is telling us a recession is here.  Political tensions are elevated with the Ukraine war having no end in sight and China not too thrilled with Pelosi visiting Taiwan (good for her).  Earnings are slumping except for Energy companies (which nobody likes all over again).  The yield curve continues to invert with 2-yr yields 0.37% higher than 10-yr yields.  And the Fed is screaming from the mountain top that it will be hiking rates to stamp out inflation no matter what it does to the already weakening economy (and hence the yield curve inversion).  But none of this matters.  Momentum is back in vogue. 

The new bullish narratives are that systematic funds will/must be buyers over the next week or two.  Corporate buybacks are set to pick up as Earnings season comes to pass.  Pension funds were supposedly sellers into month-end, so there is some relief from that overhang.  And hedge funds are still short.  As for the first two points (the third point is silly and the last one we address below), the connection is that they are price-based momentum strategies.  These work great until they do not.

If there were any wonder left about this market bounce, look no further than AMTD (ticker HKD).  It is a recent Chinese IPO in the US.  It had $25mm in revenues during the last year.  And after a 15000% run in the last two weeks since the IPO, it was worth more than Facebook (over $400b) at one point this week.  The Reddit maniacs have another GameStop on their hands…but GME was chump change compared to this one.  This will surely end like that one.  The suckers that hold will get burned and the ones running the pump & dump will get rich.

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