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We’ve extensively talked both in the public newsletter here and in our Patreon community that this rally has been mostly due to short covering and NOT long buying.
Now the covering is getting quite extreme (a 2z event globally over the past 20 days and a >3z event in N. America), while the rally is one that hedge funds are not trying to chase with longs.
This would suggest that few investors find the market fundamentally attractive.
However, given positioning is still relatively low overall and few have been willing to chase the rally, historical data would suggest the market can keep moving higher over the next few weeks to months, absent a meaningful negative catalyst.
However, it wouldn’t surprise us to see some choppiness given how extreme the short covering has been and our view that it’s unlikely to be sustained at this magnitude for a prolonged period of time.
Source: J.P. Morgan Prime Services
Macro Chart In Focus
Analyst Team Note:
The dollar is getting key support from rising interest rates as the Fed tries to rein inflation in despite the growing risk of recession. In doing so, the Fed is rebuilding its battered credibility, which is a critical element fortifying the dollar’s backbone.
Complete success, however, is still a long way off. Inflation-adjusted or real official interest rates are deeply negative, which suggests much more aggressive tightening will be necessary in order to push real rates into positive territory and bring inflation down sustainably—despite the potential negative effect on economic growth.
Global economic, financial and geopolitical uncertainty are keeping bets against the dollar contained, especially given its persistent ability to surprise to the upside in recent years.
Median rent payments for Bank of America customers increased by 7.4% YoY in July, a slight pickup from the 7.2% YoY in June.
Rent inflation is an important area of focus because 34% of US households are renters and, according to data from the Bureau of Labor Statistics, consumers spend 7% of their aggregate annual expenditure on rent.
Chart That Caught Our Eye
Analyst Team Note:
“The Biggest Picture: real rates still deeply negative, Fed tightening so limp (for every $100 of bonds Fed bought during COVID, $5tn in total, they have sold just $2), very few fear Fed (think “pivot” and return of meme stocks); yet last time Fed ended hiking cycle with negative real rates was 1954 & even assuming CPI gains halve next 6 months, inflation will still be 5-6% next spring; whether Fed knows or not, they’re nowhere near done".” - Michael Hartnett, Chief Investment Strategist at BofA
We want to take a moment to thank Interactive Brokers for being one of our Channel’s trusted Partners and to inform my audience of the special features they have given that our online friends here closely follow Chinese Internet stocks (BABA/Tencent).
Much of Larry’s audience is concerned about the US ADR issue of Chinese Stocks being delisted.
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