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Get real, get hedged, in and out

Matein Khalid
Trend is your friend until the trend comes to an end. So this has been a fabulous year to own US equities and I have surfed the Big Board/Nasdaq wave for high stakes with even occasional high octane leverage to bet on the right puppy. I am now paranoid about the risk of a major market selloff in November. After all, as Dr. Henry Kissinger noted, even paranoid people have real enemies. So where are the enemies for the bull market at this time?

When Amazon, Boeing, Apple deliver Q3 earnings disappointments, it is time Matt-san scurries to the deck of the HMS Titanic as I hunt for the looming iceberg while my pals rearrange deck chairs on Interactive Brokers. The macro zeitgeist is not exactly reassuring either. Q3 US GDP was a pathetic 2%. Inflation metrics have gone ballistic. There are 10 million vacant jobs but 5 million Baby Boomers have left the workforce forever. A tax rise is inevitable. The Powell Fed has failed its dual mandate and is now dangerously behind the inflation curve.

Iron ore prices have plunged in China. The US national debt is $30 trillion. As the mother of all interest rate rise cycle begins with the Fed taper, I can easily envisage a 30% fall in at least eight emerging market countries I track, whose names I cannot reveal lest they deny me a visa. In one case, they could even revoke my passport and it is too much of a drag to pay AED 1 million for a St. Kitts replacement. Even though que sera sera for the Pakistani rupee needs no intervention or comment from me.

Imran Khan and his cabinet clowns have taken the rupee down to 170 and I can trust this absurd captain to navigate the rupee down to 220 against the greenback before General Faiz returns to the GHQ late next year. 2022 will be – like 1994, 1998, 2001, 2008 and 2014, an epic year to make money in emerging market FX.

The S&P 500 trades at 23X earnings on the eve of a Treasury bond yield curve flattening and a desperate Fed’s me too monetary tightening. I know that bull markets climb a wall of worry but I do not have faith in my ability to climb, let alone pole vault over the Great Wall of China. In any case, the history of communism tells me those who try to climb walls in the Socialist Paradise usually end up with a hole in the head as anyone from East Berlin to Beijing attest. In America, you always hunt for a party, in China, the Party hunts for you as comrade Jack Ma will surely agree. So get real, get hedged, get out and get in.

Matein Khalid is Chief Investment Officer at Asas Capital

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