Hi Dhillon, I don't agree with the all time high's coming. I do think we will get a 15-20% run up from current low's but this will lead to the next leg down. We are heading into for a recession and no one can predict how bad this will be.
I believe the market does not reflect earnings recession.
Oil will stay high, I do believe OPEC will cut production, and when we recover, oil may spike on demand and potential stimulus from governments.
10/10 analysis, completely agree. Most commodities/energy have rolled exactly for the cyclical reasons you state + recession. CB by design must stay overly hawkish until the backward looking data equals target inflation, markets will move before. Biggest threat to this thesis is a very cold Euro winter. Biggest upside is an early resolution in Ukraine (investors unaware of the solid progress made here).
Thank you for this great and well articulated post.
On the weird disconnection XLE to OIL, I agree that its suspicious, it seems that XLE were heavily shorted by Hedge funds, hence the sustained bid on the sector, but considering last 3 days price action on broader market and the end of November month end effect and the closer we get to year end, I would expect a price normalisation also on XLE stocks (I.e: Lower from here), same for European equivalent SXEP Index.
On the short side of your pair trade I would not exclude financials from the negative equation besides the inflation arguments, based on the yield curve still not widening, and admittedly were supported by a cognisant bias towards the value argument, forgetting that in a slowdown recession mode, weak balance sheets (Russell for instance but more generally small caps) will likely experience more defaults, hence a rise in NPL for banks.
Dude, this is really nicely done. Thanks for all the charts and data. I agree very much with XLE. 2023 has a very hazy outlook otherwise in my opinion. A lot of hard to predict variables with most of it centering around just how bad of a recession will it be, and what will the impact be on earnings. My base case is that we continue to see volatility in the 1st half of '23, but if CPI continues to surprise to the downside, and the FED slows then halts their rate increases, we could potentially do well, despite economic headwinds. Data shows that markets can do ok in moderate earnings declines.
Hi Dhillon, I don't agree with the all time high's coming. I do think we will get a 15-20% run up from current low's but this will lead to the next leg down. We are heading into for a recession and no one can predict how bad this will be.
I believe the market does not reflect earnings recession.
Oil will stay high, I do believe OPEC will cut production, and when we recover, oil may spike on demand and potential stimulus from governments.
10/10 analysis, completely agree. Most commodities/energy have rolled exactly for the cyclical reasons you state + recession. CB by design must stay overly hawkish until the backward looking data equals target inflation, markets will move before. Biggest threat to this thesis is a very cold Euro winter. Biggest upside is an early resolution in Ukraine (investors unaware of the solid progress made here).
Thank you for this great and well articulated post.
On the weird disconnection XLE to OIL, I agree that its suspicious, it seems that XLE were heavily shorted by Hedge funds, hence the sustained bid on the sector, but considering last 3 days price action on broader market and the end of November month end effect and the closer we get to year end, I would expect a price normalisation also on XLE stocks (I.e: Lower from here), same for European equivalent SXEP Index.
On the short side of your pair trade I would not exclude financials from the negative equation besides the inflation arguments, based on the yield curve still not widening, and admittedly were supported by a cognisant bias towards the value argument, forgetting that in a slowdown recession mode, weak balance sheets (Russell for instance but more generally small caps) will likely experience more defaults, hence a rise in NPL for banks.
Dude, this is really nicely done. Thanks for all the charts and data. I agree very much with XLE. 2023 has a very hazy outlook otherwise in my opinion. A lot of hard to predict variables with most of it centering around just how bad of a recession will it be, and what will the impact be on earnings. My base case is that we continue to see volatility in the 1st half of '23, but if CPI continues to surprise to the downside, and the FED slows then halts their rate increases, we could potentially do well, despite economic headwinds. Data shows that markets can do ok in moderate earnings declines.