End of Week Market Update
After this week’s CPI print in the US (9.1%), we are left in an undesirable economic situation. The loss of wealth across equities and crypto has been devastating and will continue as the Fed continues to raise interest rates in an attempt to tame inflation. We saw that this week in Canada with the Fed making a full 100 basis point hike, with the Bank of Canada increasing its cost of borrowing to 2.5% from .25% from March 2022, which is leaving people who have open loans and variable mortgages paying a few hundred dollars a month extra in interest, leaving many having to make sacrifices in order to make up for the difference.
Commodities continue to roll over from their highs. Some notable drops are:
Oil closing the week at roughly $98, down 6.8% w/w
Gold down to $1700, down 2.28% w/w
Copper is down over 10% w/w and currently sitting at $3.19
Here are some agricultural items we consume daily that are disinflating big time on a week over week basis:
Wheat at $783, down 12.5% w/w
Palm Oil at $3588, down 13.6% w/w
Orange Juice at $152, down 13% w/w
Coffee at $199, down 11.7% w/w
Oats at $473, down 7.5% w/w
The yield curve is now completely inverted with the 10YR sitting at 2.90% and the 2YR at 3.10%. The bond market, specifically the 10YR continues to signal that we are headed for darker times. The 10YR is beginning to state that people are looking for safety, but the 10YR has to come down more to confirm that so let’s give that more time.
In addition, the US Dollar Index continues to get stronger and stronger, ending the week at around 108.08, gaining just over 1% w/w and up close to 8% in the last 3 months alone. The last time the US Dollar rose this quickly was May 2000.
Anything that has to do with equities and crypto continues to take a beating so be very careful buying any dips. I am essentially preparing for the next leg down. With my portfolio being 75% cash, which is my highest level of cash ever, I am being very patient. I watch and learn, watch and learn. Aside from being long the dollar (both in US cash terms and through UUP), I have been aggressively shorting the market. Remember to not rush anything in this type of environment. You are much more likely to make a mistake than make money right now, especially if you are new to investing. There is nothing wrong with sitting on the sidelines and learning. And if you do decide to make some sort of move then do it with a small percentage of your portfolio. And if you want up to date market data and a new process on how to trade this market I would suggest joining Hedgeye Risk Management as they are where I have learned how to be short in this type of recessionary environment in a responsible and successful way.
Thank you for reading,
Wassim
