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Inflation scare (yet again…)

The dip may seem worrying but it is an opportunity.

The US inflation data print was higher than expected with the prices of the selected basket of goods rising 6.2% year-on-year (vs expected 5.9%). The headlines were screaming once again of the approaching inflation monster that the Federal Reserve needs to slay soon with higher interest rates.

However, Fed official Daly (voter, known dove) immediately commented that “It would be premature to start changing our calculations about raising rates” or the pace of tapering. She did acknowledge that inflation is “eye-popping” but the central bank is also responsible for fostering jobs growth especially with Covid still being a problem.

Although the headlines seem scary, the Fed is likely to stick to its view that inflation will be transitory and they will continue to taper its bond buying at a gradual pace and leave discussions of interest rate hikes till after full employment is closed to being achieved.

The dip may seem worrying but it is an opportunity.


See the world for what it is

One mistake that many traders make is that they often look at the world for what they want it to be, rather than for what it is. This results in making decisions that are coloured by their personal biases regardless of what the facts say.

Of course, in the world we live in now, there are various versions of the same facts. It helps to keep asking yourself objective questions to help you arrive as close as possible to the truths.

For example, some may harp that inflation is going to be worrying for the economy (and they have been doing just that) and position themselves based on their worries instead of what is actually happening in the economy — relentless printing of money that will lead to inflated asset prices.

Do not be blindsided, just focus on being rich instead of being right.


Nothing noteworthy on the horizon today.


1. Currencies:
Keep short USD and long NZD, & CNH. currencies remain stuck in a range. Keep short USD and be patient.

2. Commodities: Uranium & Energy — Stay invested.

Key risks: Higher US bond yields, more Fed speakers on their thoughts about the higher than expected inflation data and potential replacement of Fed Chair Powell with uber-dove Brainard.

3. Equities:

Equity Index: Long Nasdaq futures. A stronger correction due to the US inflation data spooking investors. Stay long.

Single Stocks: A number of the TrackRecord Model Portfolio stocks are pulling back and this presents opportunities to get involved.

Key risks : Higher US bond yields, more Fed speakers on their thoughts about the higher than expected inflation data and potential replacement of Fed Chair Powell with uber-dove Brainard.


Market movements as of New York Close 10 Nov 2021
  • US CPI jumped +0.9% month-over-month in October (expected +0.6%) and was up +6.2% year-over-year (expected 5.7%). That was the largest 12-month increase since November 1990. Core CPI, which excludes food and energy, rose 0.6% month-over-month (expected +0.4%) and was up 4.6% year-over-year (expected 4.1%), which the BLS said was the largest 12-month increase since August 1991. Total jobless claims for the week ending November 6 decreased by 4,000 to 267,000 (expected 265,000), which is the lowest since March 14, 2020. Continuing claims for the week ending October 30 increased by 59,000 to 2.16 million (expected 2.051 mio). There is ongoing improvement in initial claims, which matches the corporate narrative that it has been difficult to find workers in a strong demand environment.
  • The Dollar Index (+0.95%) jumped sharply on Wednesday, hitting its highest level since July 2020, after U.S. consumer prices surged to their highest rate since 1990, fueling speculation that the Federal Reserve may need to raise interest rates sooner than expected. What’s more, the $25 bln 30-yr bond auction saw weak demand in the afternoon, further contributing to the selling in Treasuries. The US 2-year Treasury Bond yield settled higher by 10 basis points to 0.51%, and the 10-yr yield settled higher by 10 basis points to 1.56%. WTI crude futures fell -3.5%, or $2.93, to $81.23/bbl amid bearish inventory data.
  • S&P 500 fell -0.82% on Wednesday, as the market cooled off due to the hot US inflation data for October and a corresponding pop in Treasury yields. The Nasdaq (-1.44%) and Russell 2000 (-1.6%), while the Dow Jones Industrial Average fell -0.66%.
  • After yesterday’s reports that Evergrande was on the brink of formal default as it has supposedly missed an interest payment, a bondholder came out this morning to say that the company has made an interest payment of $148 million on Wednesday, meeting the payment deadline.
  • Elsewhere, Rivian’s (RIVN 100.73, +22.73, +29.1%) IPO served as another excuse for investors to take profits, or at the very least step away from the market. RIVN closed below its opening price of $106.75 but still finished 29% above its IPO price of $78 per share.


Biden pledges to battle ‘too high’ prices as inflation surges

Notable Snippet: On Wednesday, Biden described reversing inflation as “a top priority for me.”

Economic concerns have created political issues for Biden. The Democratic president has seen his popularity sag in recent months. His party is looking ahead to the 2022 midterm elections, when they must defend their thin congressional majorities.

THEMATIC CONTEXT: “With US/Debt to GDP at record levels of 130% and US expenses costing more than tax receipts, the government will have to choose between defaulting on its obligations or printing more money, and we strongly believe that the US government will opt for the latter. Any attempts to curtail easy money will kill the patient and send the Fed right back into money printing panic mode. In addition, fiscal policy has a direct impact on GDP, solving for that factor (boosting GDP) will bring the Debt/GDP equation down to a more palatable level where a wider range of policies can be enacted without killing the patient.” — 2nd Nov 2021

WHAT WE THINK: The question now is how is Biden going to “reverse inflation”, if it’s purely through raising interest rates without any stealth liquidity intervention like Standing Repo Facility or Swap Lines (ie just paying lip service to the idea of “raising rates”, but backstopping it from another angle), we believe that he will find out very quickly and painfully that it is the wrong decision with the Debt/GDP ratio at 130% (unless his idea is to kill the patient and implement policies that are out of anyone’s expected outcome). We suspect the amicable way to resolve it at this point is to subsidize the cost of living by going direct with fiscal policy, just like what they are already doing with the unemployed and stay home mothers.

For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.

Biden to sign $1 trillion infrastructure bill on Monday

Notable Snippet: U.S. President Joe Biden will sign a bipartisan infrastructure bill on Monday at a ceremony that will include members of Congress who helped write the legislation, the White House said on Wednesday.

The House of Representatives passed the $1 trillion package of highway, broadband and other infrastructure improvements last week. It was passed by the Senate in August.

THEMATIC CONTEXT: “The West needs to protect its own interest in an increasingly multi-polar world and we believe that we will see more of such infrastructure deals and building between these countries. In addition, the effect of supply chain deals are not just siloed between the two parties but beneficiaries also extend to those who are reliant on the network, increasing the value of localized companies and businesses for those who will take the effort to look deeper into domestic issues.” — 23rd Mar 2021

WHAT WE THINK: Supply chain issues are not a quick fix. Lots of investments will be required to successfully reshore capacities and build up a sustainable and reliable economic faction with partners. This has to be a concerted effort backed by free flowing fiscal stimulus by countries. We believe that we are entering an inflationary decade in absolute terms and there is little to suggest otherwise. Cash is trash as inflation is a tax on savings. We believe that Materials, Commodities, Infrastructure and asset prices will all be beneficiaries from the fiscal and monetary accommodation that will be required to ensure Western economies will not lose out in the great power competition.

For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.

OPEC makes case for fossil fuels at UN climate conference

Notable Snippet: Prince Abdulaziz told delegates that negotiators should be “conscious of the special circumstances of the less developed countries”, some of which have been resisting calls for aggressive moves away from fossil fuels because of the economic costs.

“If you switch off oil and gas today, you are switching off nearly 53% of the global energy mix,” he said, predicting “just spikes in the gas markets, spikes in electricity markets, spikes in coal markets”.

He said technology could help the world continue to use oil and gas by tackling the emissions from combusting it.

THEMATIC CONTEXT: “Traditional energy is here to stay and the ESG “dream” of having the world run on Solar, Wind and Hydro is far fetched from a practical point of view. The only energy source that can truly sustain such large energy demands while remaining “Green” is nuclear power and for that reason, we believe uranium to be the most mispriced/underpriced asset in the coming supercycle. In the meantime, traditional energy supply/demand imbalance will only be brought forward, leading to an interim bull (years) market in the traditional energy space. We remain heavily invested in this theme.” — 16th Feb 2021

WHAT WE THINK: With developed world economies punishing their bedrock producers at the height of an acute energy supply situation and the great power competition with China, it is likely that energy companies will withhold CAPEX on oil exploration and production until the narrative changes. Given the virtue signalling trend of net zero carbon emissions, we believe that it will take much higher energy prices for the developed countries to reverse their stance. In the interim, we remain well positioned for such an outcome.

For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.




Phan Vee Leung
CIO & Founder, TrackRecord

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