For the newcomers, this is what Scenario 4 Growth/Inflation slowing looks like….
Interest Rates down
Risk Assets down
We discussed the rising probability of the this set-up headed into Q4 2020 all of last week. While we still don’t fully know the answer to whether its Scen. 4 or Scen. 3 in Q4 – we’ll just keep going with our compilation of signals, both fundamentally and quantitatively. The glue that’s holding everything together is the debasement of the US dollar. Last week the dollar was signaling higher lows, and a rising probability that it was going to stabilize here in the lower half of our range. That’s proving correct this morning. We’re within an economic backdrop of “when the dollar goes up, risk assets go down”. Why do you think Powell and Mnuchin are so desperate to devalue the “buck”. Hopefully after following us for several weeks, you’ll come to realize there’s a method to all this madness. Now I could go into a myriad of reasons listed by your mainstream financial sources as to why stocks are down this morning, the FinCEN Files, Tik Tok, Ruth Bader Ginsburg, COVID returning to the UK, etc – you can always point to something after the fact, but the bottom line is that there’s a rising probability of another Growth/Inflation slowing backdrop on a 1 and 2yr look back in Q4 2020. A mentor of mine once told me “do macro, before macro does you”.
USA: SP500 -1.86%, NQ -1.60%, Russell 2000 -2.64%
EUR: GER -3.26%, FRA -3.15%, UK -3.31%, SPA -3.01%, ITA -3.09% and I could keep going
ASIA: -0.63%, KOSPI -0.95%
*Oil -2.52% this morning. I’m glad we went with the “signal” and didn’t cow tow to the threats issued to speculators from Saudi Oil Minister Bin Salman last week.
*Gold -1.90% to 1924. Gold should hold up “better” than most hard assets within this backdrop, so stay tuned in for what we do next here.
*Copper is holding up this morning, as 70% of demand comes from China – China remains in Scen 2, which those of you that know, is a much better economic backdrop.