Financial Outlook February 2019

What changed from the last financial scenario that we reported?

The only thing that stands out is that  the economic data of China and Europe worsened, reinforcing the narrative of a global slowdown in the economy.

If concrete data were worse than expected, then why did we experienced such a rapid recovery of stock indexes? Basically, because the ECB and the PBOC strengthened their policy of cheap money/soft credit, which is what they have been doing since 2009 together with the FED, which yesterday relaxed its narrative and paused balance-sheet reduction.

Surely you've heard non-stop  the perma-bull mantra of "this time is different". They are right. This time is different, supply side economics has saturated the market, it’s exhausted. The credit cycle is deteriorating and shows diminishing returns. For every dollar, yuan, yen or euro that enters the global economy, it generates less and less real growth.

It’s true, ultra-cheap debt may postpone a Tesla bankruptcy. It may even postpone a debt restructuration for Italy, Greece, Argentina or Turkey. But this is not the way to resume the synchronized global growth, it’s the way towards a stagflation or zombification of the real economy, Japan style.

So, can I buy stocks again? All media say it's safe!

No, read this, this, and this.

Do not be afraid of losing a bull run manipulated by adjacent narratives like Trade Negotiations (US-China) or the idea that central banks are going to save the economy. The peak of the American stock market was in September 2018, the only thing that changed in January were prices, and prices are  not a catalyst. Earnings are, and with the economy slowing down, those earnings will be lower than expected and will continue to deteriorate, with or without recession.

Between gold and S&P, today the balance turns in favor of gold.

Another highlight of January, bullish break in Gold, and gold miners.

For February 2019:

• Metals: maintain exposure to precious metals or mining companies. We continue with a bullish outlook for metals and mining companies, which have been showing a good performance since the end of November when we first mentioned that we considered them one of the few "cheap" assets. If you did not enter yet, it may be convenient to wait for a pullback, use whatever entry technique you prefer .
• US Indices: sell or short Nasdaq, XLK or individual companies.
• Bonds: only low risk countries. Despite the de-dollarization plans of Russia, China and in a future, Europe, the dollar remains the international reserve currency, and in this risk-off move with low rates, we will see capitals seeking refuge in the usual places: US, German and, Japanese Bonds. It's highly improbable that this financial crisis will affect payments for these countries.