Weekly post (10-14/march)
Putting it all together
This is the initial bias, the story, that this market is all about now. It is very important to understand, as we can see it evolving.
On Feb 3th I wrote:
”don’t forget that this growth was boosted by fake fundamentals since Covid, that resulted in stagflation. How? I covered this already on X, but, the key stations are:
During the pandemic, governments and the Fed flooded the economy with liquidity (“Fed put” of 2020),
Lockdowns, factory shutdowns, and shipping bottlenecks caused significant supply shortages,
Businesses started to panick, leading to over-ordering in an attempt to meet future demand,
Once the supply chains normalized, the delayed influx of goods hit the market all at once,
And this is the key, because as a result businesses suddenly found themselves with too much inventory as demand began to slow,
At this point, it was clear that inflation will resurge in critical areas like services, housing, and wages leading to stagflation (while the narrative was the victory over inflation, the reality was that policymakers underestimated structural inflation risks caused by massive debt, wage pressures, and persistent supply-side issues)
This is very important to remember during this big cycle.
So the growth can be sustained on the short run, AIs can support the bull market narrative until summer at least (and the momentum can be stabilized after the new gov took everything to their place… different environment now, the shift naturally causes uncertainity), but on the long run, market knows that something is just off with this inflation cycle, and if it breaks out of control, the pivot will be nasty, even deflational spiral.”
To put my geo post into context, this is crucial to understand that the desinflation was caused by the bullwhip-cycle back then, and the stimulus on that led directly to this stagflationary environment.
In these times politics, economy and market breath together.
Nobody wants deflational spiral. It would be catasthrophic. And lika that, we can see it getting priced out in EU.
On Feb 24 I explained you my ‘spot decay’ call that we are seeing evolving:
with relatively increased SPX/VIX beta, due to the constant intraday local negative speed environment to ensure slow, mechanistic decay (via VWAP/TWAP type strategies):
So, lets put it all together…
The rich put wing, backwardated term structures, and CTAs and leveraged ETF de-leveraging, with rebalancing trades keeps providing downside pressure on the markets, concetrated in tech sectors.