Over the past week, the S&P500 added 0,9% (23,6% YTD) while the Nasdaq100 gained 1,2% (30,4% YTD), supported by China and the US agreeing (despite fierce internal opposition in the US) to roll back tariffs on each other’s’ goods as part of the “first” phase of a trade deal. The US also said it was not sure it would have to raise tariffs on European goods after all (to be confirmed). The US small cap index gained 0,6% (18,8% YTD). CBOE Volatility Index dropped -1,9% (-52,5% YTD) to 12,07. AAPL gained 1,7% (64,9%). MSFT gained 1,6% (43,7%). INTC rallied 3,1% (24,2%). GOOG rallied 3,0% (26,6%, Z-score 2,1).

The general impression from last week was that speculation reigned supreme and that the closer we’ll get to the end of the year, the more investors who had stocks might think they do not own enough despite an uncertain outlook. The others still have to embark and “Fomo” (fear of missing out) remained the most powerful driver of risky assets last week. The Eurostoxx50 rallied 2,2% (26,1%, Z-score 2,2), outperforming the S&P500 by 1,3%. Europe was the main beneficiary of reduced trade tensions last week and of the return of “value” at the expense of “momentum” and even “low volatility” risk factors. Diversified EM equities (VWO) rose 0,8% (12,5%) with China and Russia continuing to lead (up 32% and 25% respectively YTD). The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 1,2% (5,7%, Z-score 2,0) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,1% (1,7%). In EM currencies, ZAR recouped some of last week’s losses; Chinese Yuan rallied and the rest of EM was narrowly mixed. USDBRL rallied 4,4% (7,4%). The big and statistically significant moves happened in bonds. 10Y US Treasuries underperformed with yields rising 23bps (-74bps, Z-score 2,4) to 1,94%. 10Y Bunds climbed 12bps (-51bps) to -0,26%. 10Y Italian BTPs underperformed rising 20bps (-155bps, Z-score 2,8) to 1,19%, underperforming Bunds by 6bps. EMLC (VANECK JPM EM LOCAL CCY BOND) dropped -0,8% (1,8%). US productivity numbers unexpectedly dropped in Q3 by 0.3% annualized, the biggest decline in four years. US Aggregate Corporate Average Spread over Treasuries dropped -5bps (-48bps) to 1,05%. US High Yield (HY) Average Spread over Treasuries dropped -16bps (-157bps) to 3,69%. US High Yield (HY) Caa Average Spread over Treasuries dropped -65bps (-87bps) to 9,02%. Gold sold off by -3,7% (13,8%, Z-score -2,5) while Silver sold off by -7,3% (8,5%, Z-score -2,6). The correction was sort of inevitable as stocks powered ahead with the dollar inching higher and gold futures speculative longs remaining near the highs. Somebody is short all these futures (which are zero sum games) and in a world where it is the “marginal” investor that determines the near-term gold price swings, anybody who can control and flush out those marginal flows still controls the market over the …near term. There is no need to call names. Some houses have been accused and subsequently condemned for manipulating the price of gold and silver and they will continue to do so occasionally, allowing the paper gold system (which allows claims on gold to surpass the existence of physical gold by a factor 100 or more) to live another week. The reasons to want to own gold in physical, allocated and unencumbered fashion have varied over time. Sometimes it was because of inflation. Sometimes because of a deflation scare (associated to credit crises). Sometimes it was because locally or globally there was a looming or averred currency crisis. Today offers a mix of all the above. Inflation is everywhere to see in the asset space (bonds, real estate, art, stocks etc…) and even in the rising cost of basic necessities like college tuition or (good!) medical care. As a base, deflation is what is left after taking out the price of everything that has been going up and after giving due consideration to the benefits of globalisation (cheap labour) which is now fast unwinding. Credit problems is what overextended debtors (private, government and corporate) will be facing when interest rates “start” to rise. This is likely the reason why they won’t rise any time soon and why QE (and non-QE) balance sheet expansion will return with a vengeance, culminating with the near certainty that central banks will buy and hold more bonds and other assets forever. This is also the reason why the Heads of central banks are fast becoming lawyers (with a strong political bias) instead of trained economists...and why we get unreasonable politicians insulting their central bankers because rates are not going to zero fast enough. It is also the reason why we get previously reasonable political leaders to say publicly to the Economist that the European 3% budget deficit rule is “from another century”… The link to Ray Dalio essay (“The World Has Gone Mad And The System Is Broken”) is a strong case for gold. We crunched some numbers over the week end to recap the performance of most asset classes (including gold) over the past 20 years. Figures talk about the past and are no indicator of future performance but what is certain is that government bonds and corporate bonds will go through a multi-year period of mediocre returns at best. Those who had a reason to own gold over the past 20 years won’t easily find a reason to change their allocation. Major Gold Mines (GDX) sold off by -6,4% (24,4%). Goldman Sachs Commodity Index gained 0,4% (10,8%). WTI Crude gained 1,9% (26,1%). CPER gained 1,3% (2,7%).