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What A Week It Was...

Last week, the S&P500 jumped 2.2%, and the dollar index declined 1.7%, delivering a 0.5% net return to international investors. We like Davos for the variety of people being interviewed from politicians to business and asset management leaders. However,  we share the view of Integris Hedge fund manager that Davos is a “momentum machine” whose market calls need to be taken with a pinch of salt and some contrarian bias. With stock market bubbling and  commodities rallying, with a a near fully employed US economy and now an acceleration in dollar weakness, the momentum behind the uptick in inflationary expectations should not come as a surprise. Neither should it be ignored. The optimism in Davos was overwhelming  and taken as a reason to push equities into overdrive (supported by a “melt up” announcement made by the largest hedge fund manager of the world Ray Dalio and a “cash owners are idiots” declaration by Larry Finck, the too big to fail largest asset Manager of the world). Both players are somewhat conflicted to say what they said and contributed to exacerbate a snow ball effect last week, which fostered financial markets instability (melt up is a form of financial instability). US Treasury secretary Mnuchin managed to do the same, spelling out what is de facto now a “benign neglect” US dollar policy that received a stern and swift rebuke from ECB President M. Draghi.  

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