Market comment 2022

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Cathie Wood believes that if a market bubble is growing, it is being created within value stocks and not growth names. "In our view, the real bubble could be building in such so-called "value" stocks with much higher valuations in the context of a five-year investment time horizon as opposed to last year," Cathie Wood wrote in ARK's latest quarterly report. Wood added: "Meanwhile, the valuations of many innovation related stocks have been cut in half." Moreover, in ARK's quarterly commentary report it also states: "In our view, long-term inflation fears are overblown because inventories are stacking up in the face of weak consumption." It's ARK's view that the real risk to the market outlook is deflation versus inflation.

 Cathie Wood says the real bubble could be building in such so-called “value” stocks | Seeking Alpha

Meanwhile, companies are beginning to warn of a business impact in January from the fast-spreading Omicron variant. Today Lululemon said the variant is weighing on its business to cap off its fourth quarter, while FedEx acknowledges it's seeing staffing shortages. “We are closing out a strong 2021 in the coming weeks, and we’re pleased with how Lululemon has delivered over the course of the year. We started the holiday season in a strong position but have since experienced several consequences of the Omicron variant, including increased capacity constraints, more limited staff availability, and reduced operating hours in certain locations," Lululemon CEO Calvin McDonald said.

 Stock market is 'massively' overvalued, warns strategist

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Foreign investors are piling into China at the start of 2022, seeing it as a haven from the inflation, growth and pandemic problems plaguing most other markets... For David Dali, head of portfolio strategy at Matthews Asia, China is the "single favourite country" in 2022 among the roughly 30 investible emerging equity markets. "We believe Chinese valuations are some of the least risky and most attractive of all major markets," Dali said. He cited factors including lesser regulatory headwinds, government readiness to stimulate the economy, and a political mandate to maintain stability in a year widely expected to confirm President Xi Jinping's unprecedented third term. Fidelity International also sees China stocks as attractive from a global perspective.

 Investors seek refuge in China as Fed, inflation roil other markets | MarketScreener

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The QE programme has come to an end. The total government cash requirement is to be funded by financial markets. And, in addition, QE may begin to be unwound. This means that the Bank of England will not repurchase gilts when those it owns are redeemed. It owns 33% of all gilts right now. What this means is, broadly speaking (and all the figures are estimates, so broadly speaking is good enough) that in 2022/23 the financial markets will have to fund £100 billion of gilt purchases and at the same time the Bank of England will withdraw over £35 million from that market. 

That means there will be a cash call on U.K. financial markets of around £140 billion when over the last two years there has been none, in effect. This is a seismic change to funding. More than 6% of UK GDP is going to be required by government to be withdrawn from effective money supply. What are the consequences? Candidly, who knows? We can be sure that the policy is deliberately designed to push down government bond prices by increasing the number of gilts available to the market. The result will be increasing interest rates. That much is predictable. It is also predictable that without a change in policy more than £100 billion is going to be withdrawn from financial markets over the following few years. Apart from increasing interest rates no one can be sure what the consequence of this is. 

But, given that QE was always intended to push investor funds into riskier assets, and this has clearly happened, what we can reasonably expect is a reversal of this trend. There will be sales of riskier assets. In fact, those sales could be significant. The £140 billion required in the coming year has to come from somewhere within the financial system, and they do not create the money to fund this. What this might mean is three things. First, there will be net selling markets in riskier assets. Second, net selling markets reduce prices at the margin. Third, markets are valued at marginal prices, meaning that the overall sense of well-being amongst those with assets will fall.

 Bad as QE Was, Unwinding It Rapidly Could Be Worse | naked capitalism

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The number of UK long Covid sufferers has hit a record high of 1.33 million people, an Office for National Statistics survey found, rising from 1.27 million at the start of December. The figure includes more than 550,000 people who caught Covid a year beforehand, underscoring the long-lingering and often debilitating impact of the virus for some people. The figures are based on self-reported long Covid – more than four weeks of symptoms – from a representative sample of people in private households in the four weeks to 2 January. Nearly two in three people with long Covid (836,000) said it was adversely affecting their day-to-day activities – with 244,000 people saying their ability to undertake day-to-day activities has been “limited a lot”, the ONS found.

 Coronavirus live: Europe in virus ‘ceasefire’ with tranquil period ahead, says WHO; record UK long Covid cases | World news | The Guardian

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In a move labeled by analysts as a "pivot," European Central Bank President Christine Lagarde was more hawkish than expected at the central bank's meeting on Thursday. She acknowledged mounting inflation risks and declined to repeat her previous guidance that an interest rate increase this year was "very unlikely." read more. The euro jumped on Thursday and extended its gains on Friday, hitting a three-week high. At 1152 it was up 0.3% on the day at $1.14745. read more

 European stocks falter; bond yields rise after ECB 'pivot' | Reuters

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While January job growth was remarkable, major upward revisions to November and December’s employment gains are more significant to the overall picture of the economy. The Labor Department revised the November gain of 249,000 jobs up to 647,000 and December’s meager gain of 199,000 jobs up to 510,000 — a total of 709,000 more jobs than previously reported.

 Five takeaways on a stunning jobs report | TheHill

• 467K jobs where negative job growth was expected and then a 709K revision of the two previous months, the economy is doing much better than many thought.
  

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Some commentators are comparing the current Russian aggression against Ukraine to Hitler’s invasion of Poland in August 1939. Here’s another analogy that could be more accurate: In 1979, upheavals in the Middle East sent energy prices soaring—and Western economies tumbling. Russia is the world’s No. 3 exporter of oil, and its No. 2 exporter of natural gas. If Western countries respond to Russia’s invasion by imposing sanctions, Russia’s obvious countermove is to retaliate by cutting back fuel sales.

 How a Russian Invasion Will Affect Gas Prices - The Atlantic

In Petraeus’s estimation, however determined Vladimir Putin may be to invade Ukraine, he lacks the troops and the popular support needed to succeed in taking over the country for any significant period of time. In essence, however difficult the Iraq War was for the United States, the Ukraine crisis will be far harder for Russia.

 David Petraeus on What Iraq Tells Us About Ukraine - The Atlantic

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As Hosuk Lee-Makiyama, the head of the European Centre for International Political Economy, said, Europe  has allowed itself to become more integrated with Russia, while Russia has separated itself from Europe. He said EU countries owned a combined €300bn of Russian assets that would be vulnerable to confiscation if a full-blooded financial war broke out. The UK owns billions more via firms such as BP, which has a near-20% stake in the Russian oil company Rosneft.

“Sanctions are one of the few options that European countries have in a conflict situation like this. If you disconnect North Korea or Iran from the international financial system, you do not expose yourself to that much damage.”  Speaking on BBC News, he added: “But while I don’t say it is impossible to envisage Russia being barred from the Swift system, it is a nuclear option that means you exterminate yourself along with your enemy.”

 Western powers have realised Russia is largely immune to sanctions | Russia | The Guardian

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Maybe Netherlands should take back Flanders, linguistic and cultural similarties, once part of the kingdom, and together they are a superpower too..

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To re-establish the Russian empire, Putin needs a relatively bloodless victory that will lead to a relatively hateless peace. By spilling more and more Ukrainian blood, Putin is making sure his dream will never be realised. It won’t be Mikhail Gorbachev’s name written on the death certificate of the Russian empire: it will be Putin’s. Gorbachev left Russians and Ukrainians feeling like siblings; Putin has turned them into enemies, and has ensured that the Ukrainian nation will henceforth define itself in opposition to Russia.

Nations are ultimately built on stories. Each passing day adds more stories that Ukrainians will tell not only in the dark days ahead, but in the decades and generations to come. The president who refused to flee the capital, telling the US that he needs ammunition, not a ride; the soldiers from Snake Island who told a Russian warship to “go fuck yourself”; the civilians who tried to stop Russian tanks by sitting in their path. This is the stuff nations are built from. In the long run, these stories count for more than tanks.

 Why Vladimir Putin has already lost this war | Yuval Noah Harari | The Guardian