I was invited by Geneva’s Bank Syz for a fascinating discussion with its CIO Charles Monchau and some of my close friends who are family office CIOs at Zuma, a wonderful venue that I had never visited in the afternoon until now. It is always nice to see a familiar place from a totally different perspective in sunlight fortified by Evian! Danke schön/merci beaucoup/molto grazie Bank Syz. I am sorry I cannot thank you in Romanisch but then they barely speak it even in the Engadine Valley.
Charles said that the US/China trade/technology cold war and Russia’s weaponization of gas to Europe constitutes a new world order. The last decade was about QE, globalization, deflation, world trade, low interest rates, low taxes and a US/China economic entente and cheap Russian gas to EU/German appeasement of the Kremlin. This decade is about QT, war, nationalism, de-globalization, inflation, bond market bloodbath, higher taxes and a fragile geopolitical risk mileu. This Orwellian world order needs a paradigm shift for all of us trapped in the money maze.
Great to see Apache (APA), my fav oil and gas driller in Egypt trade at 46 or 53% above when I argued the bullish case for APA at $30 a month or so ago. Even though Egypt just devalued the pound under IMF diktat, Apache is a winner since its local costs just fell by 20% while its revenues are in King Dollar. This is an offshore driller in Surinam/Gulf of Mexico that is classic takeover bait for the Seven Sisters who are printing money in black gold. Note that Exxon and Chevron alone have more than doubled from their levels in mid-2021 amid a ghastly bear market in global equities/debt. If El Toro is dead, Mateo has to knit pick sectors!
I now go into digital purdah and try some Zen meditation with my financial sensei as the countdown begins to the November FOMC conclave. October was a bear market rally since consensus earnings have fallen from 250 in June to 240 by mid-October. The deceleration in earnings will accelerate as the global economy sinks into recession. I am certain earnings downgrades will define the first six months of 2023 even as the Fed funds rate reaches a terminal level of 5.25%. Will inflation fall to 2% next year? Dream on Uncle Jay. You messed up the world with Vlado the Baddo, Xi and Uncle Joe’s $2 trillion fiscal stimulus. Paul Volcker took seven years to squash inflation in the 1980’s despite engineering the biggest global slump since the great depression and 20% dollar rates.
Inflation will be 5% next year if the fall in house prices, used cars and shipping freight rates continues. This means the stock market multiple has to derate lower to account for earnings downgrade, a higher risk premium (Putin’s bluff on nuclear war, Baby Kim’s missiles, President Xi’s CCP palace coup and Taiwan dreams, a Third World sovereign debt crisis, social unrest across the West) and protracted 5% inflation. I reiterate 200 EPS and a 13X val for a 2600 target. Ouch? Not if you are short!
Matein Khalid: Investor | Family Office CIO | Portfolio Strategist | Board Advisor | VC | Finance Professor
Also published on Medium.