In today’s briefing:
- SVB Watch – Time to Figure Out Who’s Naked
- Double-Dip Recession 1980-1982 = False Dawn 2023?
- Will the Fed Crash the Stock Market?
- Active Equity Portfolio Management Trumps Passive in the Post-Easy Money Environment
- Where Are the Safe Havens?
SVB Watch – Time to Figure Out Who’s Naked
- Silicon Valley Bank is nothing but a symptom of years of excess money growth and it is now time to figure out who else is swimming naked.
- Money growth is negative, and idiots only survive in times of excess liquidity.
- Here is what we know and what to expect for the week ahead
Double-Dip Recession 1980-1982 = False Dawn 2023?
- The stock and bond market is in disagreement again. While cyclical industries are in relative uptrends, indicating expansion, the 2s10s yield curve is deeply inverted, indicating recession.
- We believe the current equity market expectations of a cyclical recovery is simply unrealistic in light of the Fed’s focus on 2% inflation.
- The current situation is highly reminiscent of the double-dip recession of 1980–1982. Investors are advised to be prepared to revise their risk profile as conditions may change later this year.
Will the Fed Crash the Stock Market?
- The S&P 500 has been consolidating sideways since it staged an upside breakout through a falling trend line in January.
- The upside breakout was constructive for stock prices, but until the consolidation period resolves itself either to the upside or the downside, it’s difficult to be definitive about direction.
- While we are constructive on stock prices, some caution needs to be warranted here.
Active Equity Portfolio Management Trumps Passive in the Post-Easy Money Environment
- The reaction of central banks to the global financial crisis (GFC) was a boon for passive investment funds after 2008 and, consequently, bubbles in equity and fixed income investment benchmarks.
- Easy money and passive investment turned long-standing relative financial asset returns on their head: value stocks no longer outperformed growth counterparts. Small-cap stocks also began underperforming their larger brethren.
- Higher economic and inflation volatility in the future means that the nature of post-GFC investment returns will not return, thereby implying a much bigger opportunity for active fund management.
Where Are the Safe Havens?
- Having been the poster child of the 2023 rally, the banks are back in the doghouse as fears grow about their credit quality.
- This may be exaggerated, but over the years you come to realise there is no smoke without fire.
- Silicon Valley Bank (SVB) has been funding the technology and life sciences sectors.
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