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Your Quiver | Thursday, March 30, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Recent Rally

Investors are betting that (i) we’re nearing peak interest rates and (ii) the banking crisis is under control. Tech is up. Retail too. Same with unemployment (driving the idea behind rates peaking). Right now investors are projecting rates to hit 4.3% at year end, roughly 70bps lower from today’s level.

Opening Day

Baseball fans and bull market enthusiasts may be cheering today, but the winter ceiling of 4195 and the Aug top of 4325 for the S&P are the real tests for a bull market call. We’d caution that the incoming flow of macro data plus the tidal wave of 1Q earnings is right around the corner. So, getting lulled into a month- and quarter-end bump up in the market is not usually the best call. We’ve still got an inverted yield curve and a credit cycle coming our way, folks. Also, UBS notes that yesterday’s trading session had the fingerprints of a number of CTAs along with traders window-dressing their portfolios for quarter-end by purchasing shares of big technology companies, supplying the primary impetus for the bullish price action.

Cat and Mouse Game

Prior to DeSantis’ board members starting their jobs to oversee governance of Disney World, then current board members passed restrictive covenants that stripped the new board of key powers. For example, they gave $DIS max developmental power over the theme park’s 27k acres. Remember, all this started as a reaction to $DIS opposition to the “Don’t Say Gay” legislation. No matter what your politics, you have to get a chuckle out of some of the terms they jammed in. The district is prohibited from using the name “Disney” or any symbols associated with the theme park without the company’s permission, and it can’t use the likeness of Disney characters or other IP. Plus, the company can sue for damages for any violations, and the agreement is in effect until perpetuity. If the agreement is deemed to violate rules against perpetuity, it will be in effect until 21 years after the death of the last survivor of the descendants of England’s King Charles III. Of course the Royal Family has “no comment.”

Sinking Ship, Uncovered Gems

RH’s CEO came out with a few gems after reporting disappointing earnings with a terrible guide, stating, “I’ve never seen a luxury home market down 45% a quarter even, not even in 2008 and 2009. So I think we’re near the bottom. But could it get a little worse? I think it could.” On the bright side, you can charter RH’s luxury yacht and visit RH England, where you can take in views of “Europe’s largest herd of white deer grazing on the vast and scenic property from the 46 windows adorning the south facing main building” and partake in a “glass of wine or afternoon tea service while sitting around monolithic stone fire-pits on the Grand Viewing Terrace.” Or, if you’re a union worker protesting today in the EZ, you can eat your home-cooked sausage roll and applaud the short sellers who benefitted.

Payments Play

One of Brazil’s banks became the first in LatAm to sign up as a direct participant in China’s cross-border payments settlement system, whereby folks could transact with China in yuan. Obviously this enables moves away from the US-dominated global system.

Thou Dost Profess Too Much

In response to ChatGPT and AI getting all the attention lately, the Head of Global Affairs from $META professed that the metaverse is still the next big thing.

Grease Monkeying

Platts is going to use West Texas crude to help determine prices, versus dated Brent, because the existing benchmark is running out of tradable oil. Dated Brent is used currently to set price for about two-thirds of global supply, so this is an untested experiment.

Policy Reversal

Investors are on edge that Japan’s easy monetary policy under Kuroda will be reversed by incoming BOJ Gov Ueda. That’s because easy policy opened up $3.4 trillion (with a “t”) of cash—and we could experience a reversal of those flows with the policy change.

Time to Wake Up

We’ve covered this a few times the last few weeks—but I guess MS just woke up to the story. $SCHW clients are moving cash out of low-rate bank accounts at 2x the rate that MS expected. Clients are moving the cash in Schwab, to money market funds at a rate of $20bn/mo per Cyprus. So, earnings will decline—and he just cut his figures by -30% for 2023 and 2024. For those of you out there that believe the banking crisis is over, and nothing has changed—per our other story this week—estimates are coming down. So, get out of bed and get your clothes on…don’t be caught hitting the snooze button like others.