The Week in Review

The Best Questions Have No Answer

The first week of spring, the fifth week of the Russian invasion of the Ukraine and one of the best weeks of the year for the stock market. There is just so much to process right now, I sometimes wonder if market valuations struggle to keep up with all the news as well. Today, as opposed to making claims and giving opinions, I lay out the questions that haven’t been answered yet but are needed in order to answer the ultimate question of where do markets go from here?

When will the Russia-Ukraine conflict end (some rumors on the battlefield suggest by May 9th)? When this conflict does end, what will remain of Ukraine and what will remain of the Russian economy? When this war comes to a close, who will be running Russia? Will we be able to avoid a larger scale conflict before this one ends? How will the event shape geopolitics for the decade ahead? Is Europe capable of replacing Russia for its energy needs? Will the world be able to find alternative sources to Russian exports? Does the world intend to learn from this experience?

Will the economic outlook get better from here? For how long and how high will inflation run? How much inflation can the consumer tolerate? How much inflation can our economy tolerate before it begins to contract? Will raising interest rates really slow down inflation? How much do we need to raise interest rates by in order to help cool inflation? How fast do we need to raise interest rates in order to lower inflation? How much can we raise rates without causing a housing market crash? How much can we raise rates without causing a recession? After hearing Citigroup’s forecast of four 50 basis point rate increases this year, what is the Fed thinking of doing next?

Evidently, we have plenty of questions that need answering if we are to become less cautious. Realistically, none of the questions will be answered until the event happens which means we will have to continue navigating day by day. Speaking of the day to day, we received some pleasant news from Bank of America this morning: ?their indicator is flashing green for the first time since the onset of the pandemic in March 2020, potentially signaling further upside for equities in the weeks ahead.?“There have been eight contrarian ‘buy signals’ since 2013,” BofA strategists led by Michael Hartnett wrote in a note to clients. “Back-testing shows that in the 12 weeks following buy signals, global equities have risen 8%” . New questions come to mind; how do we play this news? How aggressive can we become in the short term? How long will this buy signal last??Can the markets go higher in the short term and pull back again, soon after?

It is worth noting that well known economist Mohamed El-Erian has suggested using this short term rally as an opportunity to further de-risk portfolios as the economic outlook has not materially improved (and may have worsened in recent weeks). I would also share that JPMorgan now has the odds of a recession over the next 3 years at 50%. Depending on your personal bias, you may see this as glass half full or glass half empty.?With that, I address my next series of questions to our clients: how does this news make you feel? How would you prefer that we respond? Apologies but accurately timing the future is wishful thinking!

Healthy Distraction

Why did the Italian soccer league go from being the biggest in the world in the 90s, to the third best today? How did the Italian soccer federation become so poorly run that Italy will have missed the World Cup two times in a row? When will the stubborn minds running the show in Italy, wake up to the realities of today? How much of an emotional roller coaster do the fans need to tolerate? Some may be asking: David are you really that bothered by these events? To put it into perspective, we went to my in-laws for dinner last night (where we enjoyed some delicious ‘Kefalonitiki Kreatopita’ courtesy of my Mother-in law) in honor of Greek Independence day (March 25th). My wife’s grandfather, whose English vocabulary is limited, managed to pick up on my state of mind and offered me his condolences for my team! Congratulations to the North Macedonians, however, huge game for them.?

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