In today’s briefing:
- Alert: Do Bears Hunt in Packs? (Part 1)
- Alert: Do Bears Hunt in Packs? (Part 2)
- Sri Lanka’s Sovereign Default: Painful Structural Reform Needed
- Rush to Normalise Fed Policy Settings Raises Questions Over US Corporate Profits Outlook
Alert: Do Bears Hunt in Packs? (Part 1)
- Global Liquidity, the main driver of World asset markets, is heading much lower. Bear market is here
- Recession coming: some economies may even already be in recession
- Investor exposure to stocks too high and out-of-line with deteriorating economies
Alert: Do Bears Hunt in Packs? (Part 2)
- Global Liquidity, the main driver of World asset markets, will head much lower
- World Central Bank Liquidity slated to contract by 10-20% over next 2 years
- Bond markets are already screaming a warning with ‘death-cross’ formation
Sri Lanka’s Sovereign Default: Painful Structural Reform Needed
- With foreign reserves down to US$1.939bn in Mar’22 (less than a month’s import cover), Sri Lanka announced a default on its US$7bn of external debt payments this year.
- External debt (US$51bn) is 424% of exports, with a debt service ratio of 39.3%. Public debt (119% of GDP) is unsustainable too, with the primary balance 8%ofGDP away from sustainability.
- Painful structural reform is needed, reforming the labour market, privatizing government companies and widening the basket of exportable goods and services, possible only after a change of government.
Rush to Normalise Fed Policy Settings Raises Questions Over US Corporate Profits Outlook
- The Fed’s urgency to return the federal funds rate to neutrality by year-end has recently risen. Further upside risks depend on whether inflation risks have receded sufficiently by 2023 Q1.
- The current strength of US labour demand seems inconsistent with the imminent onset of recession. Companies may feel comfortable about labour hoarding if they are able to raise selling prices.
- Analysts are optimistic about higher operating margins in 2023, but equity investors are reluctant to pay richer valuations due to greater economic risks, courtesy of more hawkish Fed policy.
Before it’s here, it’s on Smartkarma
