Insight - Making Sense of the Narrative

Markets have two ‘modes’ – momentum and mean reversion. Last year of course was a huge momentum year for the Macro Traders. On the negative side. They made their huge profits from a short position in Bonds, Equities, Metals and Currencies (against the $).

Firstly, a Happy Chinese New Year to all our friends and colleagues in Asia, for as we pointed out in a post this time a year ago Chinese New Year is celebrated not only in Greater China but across much of Asia.

Just before Christmas, I was delighted to have the opportunity to chat with Angelo Robles, founder of the US based Family Office Association about a wide range of subjects, but in particular how we at Market Thinking saw the coming year in markets

The idea of ‘Musings’ is that while none of the following might merit a full post of their own, they might perhaps add up to some interesting observations (of sorts).

Macro Traders had their best year in decades in 2022, benefitting from clear negative trends in Bonds, Equities, commodities and currencies (against the $)...

Year ahead views and thoughts - The consensus forecast for the Global Economy in 2023 is pretty clear, a peak in inflation and a sharp slowdown in GDP that will be ‘short but not painless’. The associated view for markets, however, is more diverse and largely depends on the extent to which this economic slowdown is regarded as being ‘already in the price’.

Karl Marx famously said that Religion was the opiate of the masses, while legendary Liverpool Football managers Bill Shankly said Football “wasn’t just a matter of life and death, it was more important than that”.

Currently, equity markets in general are stuck just below their long term moving averages and, as we might put it, look to be ending a bear phase but not yet entering a bull phase, similarly gold, while credit and Bonds are steadily recovering – albeit still well down on the year.

“China has a tendency to ‘test’ new policies on certain regions before going ‘nationwide’ with them. Thus, it is entirely possible for, say, the Greater Bay Area, including Hong Kong, to see an earlier easing of Covid restrictions than other parts of the country. Indeed, watching the recent spike in the prices of Macau casino stocks, the locals are clearly looking at things this way.”

With the end to Mutual Fund tax-related selling in October and the closing out of the CTA hedge fund short positions ahead of Thanksgiving in November, the equity markets finally managed to put together two back to back positive months, reinforcing the seasonality trends of this time of year and taking negative returns from the 20’s to the teens for most investors.

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