Closer to 1927 than 2007...
- Marc Bentin
- Nov 10
- 7 min read
BentinPartner Weekly
Dear Reader,
Please find below our latest Weekly Trend Report.
Have a nice start of the week.
Marc Bentin,
Bentinpartner GmbH
US stocks suffered a mild correction last week (despite a nice late Friday afternoon rally that took all major indices away from near term technical danger zones), still with some bellwether tech names suffering a notable correction as question marks were raised on the sustainability of the AI (especially for Meta and Open AI), and private credit bubbles. Palantir dropped -11%, AMD -8%, Nvidia -7% while Microsoft and Meta also dropped -4% on the week.
US 10Y yields also climbed 2bps last week (to 4.12%) while European bonds underperformed.
The USD dropped marginally as well (by 0.2%).
Just like many people at this stage, I see similarities between today’s situation and 1997, or the year that preceded the great financial crisis which started with the collapse of two Bear Sterns credit funds.
The recent Tricolor & First brand bankruptcies and the slow grinding lower of private credit funds (and their sponsors) could indeed be seen with that perspective in mind. In particular, the fact that even the World Economic Forum over the past few days warned, after the Goldman, BoA, JPM, the BIS and the IMF about the “risks” of a bubble in AI and private credit, is a legitimate concern but also, at this stage, evidence that everybody is concerned (and possibly working on fixes and tricks) …and that, as a result, in terms of timing, we may still be some time away from the unraveling of these two bubbles and miscellaneous financial excesses.
Actually, I think that similarities are greater today with the 1927-1929 period which would be bad news but not necessarily over the short term.
Indeed, with this silently not so contrarian but loudly controversial view, we would be fast approaching the time when the Fed turns very accommodative due to the recognition of job market weakness and a de facto taking of control of the Fed by the US government.
The academically contested validity of S. Miran’s argumentation, for all its sins and flaws, remains supported by the White House and he is more likely to get his way across (favoring 50bps rate cuts moves from now on) with the current administration, especially after the political setback (and outright wake up call) delivered by the shocking election of the most left-wing Democrat candidate as new mayor of New York.
If President D. Trump wants to avoid the repetition of such a “rejection” vote in the mid-terms, he will have to forcefully tackle the issue of “affordability” as well which is unlikely to lead to more US fiscal orthodoxy.
At the same time, President D. Trump will likely urge a policy seeking to mitigate the adverse fiscal impact by
- borrowing more with shorter tenors and reduce the duration of the US debt
- forcing short term rates down, below the rate of inflation (financial repression)
- implementing yield curve control (QE) to force longer term rates down as well (long term yields are currently stubbornly refusing to come down despite the ongoing monetary easing campaign).
In that sense, we might be closer to 1927 (than 1929) when the Fed aggressively slashed rates and increased purchases of government securities to expand the money supply, despite rampant speculation, in order to support domestic economic activity and stabilize international financial markets. This policy also triggered a manic upsurge with the crash only happening in 1929. Prior to this, in 1928, US stocks posted their best year of the decade (+37%), supported by optimism, speculative fervor and strong corporate earnings. So, we might be heading for 1928 after all as well.
Interestingly, last week, there was also a fair bit of controversy (following recent turmoil regarding the debt financing binge observed in the AI space) after Open AI CFO Sarah Friar said that OpenAI was “looking for an ecosystem of banks [and] private equity” to support its ambitious plans, hinting at a role for the US government to “backstop the guarantee that allows the financing to happen”. The market read this as testing water for requesting a government backing if not bailout for the huge AI financing being put in place… (something S. Altman quickly backtracked from (calling it an unfortunate choice of words) after David Sacks responded to OpenAI: "There Will Be No Federal Bailout For AI... If One Fails, Others Will Take Its Place").
That is all well and fine “pro forma” but on the other hand, on Friday last week, Bill Pulte, the director of the Federal Housing Finance Agency (and fresh Trump appointee) also said that Fannie Mae and Freddie Mac were looking at ways to take equity stakes in technology companies ready to accept it “because of how much power Fannie Mae and Freddie Mac have over the whole “ecosystem”. In other words, Trump is ready to help and to answer the call of those fragile (Open AI is one of them now and probably Meta as well) tech companies that are deemed critical but walking over their skis. It does not necessarily imply an implicit guarantee but it could certainly be a step in that direction.
Last week, Gold and precious metals were mostly unchanged, bucking the trend of lower equities and bonds. This might mean the bottom is in after the recent correction and all of the above (if averred) should be very bullish for precious metals (lower rates, QE, AI backstops, soaring deficits etc.) going forward.
In Europe, ZEW expectations for the next six months are due out today, expected to improve to 41.0 in November (from 39.3), as fiscal easing starts to be implemented. German CPI is due out tomorrow (2.3% yoy).
In the US, the NFIB Small business optimism is expected at 98.5 (from 98.8 currently).
Over the past week, the S&P500 dropped -1,6% (14,5% YTD) while the Nasdaq100 shed -3,1% (19,3% YTD). The US small cap index dropped -1,9% (9,3% YTD). AAPL dropped -0,7% (7,2%).
The Equally Weighed SP500 dropped -0,2% (7,0% YTD), outperforming the S&P500 by 1,4%. The median SP500 YTD return closed the week at 4,7%.
Cboe Volatility Index rallied 9,4% (10,0% YTD) to 19,08.
The Eurostoxx50 dropped -1,7% (16,6%), matching the S&P500.
Diversified EM equities (VWO) dropped -0,8% (23,8%), underperforming the S&P500 by0,8%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,2% (-4,3%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,4% (6,2%).
10Y US Treasuries dropped 2bps (-47bps) to 4,10%.
10Y Bunds climbed 3bps (30bps) to 2,67%. 10Y Italian BTPs climbed 5bps (-9bps) to 3,43%, underperforming Bunds by 2bps. 10Y French OAT's dropped 4bps (27bps) to 3,46%, underperforming Bunds by 1bps.
US High Yield (HY) Average Spread over Treasuries climbed 15bps (9bps) to 2,96%. US Investment Grade Average OAS climbed 4bps (2bps) to 0,89%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 2bps (-3bps) to 0,60%.
Gold was unchanged (52,5%) while Silver dropped -0,8% (67,2%). Major Gold Mines (GDX) gained 0,7% (113,9%).
Goldman Sachs Commodity Index gained 0,1% (7,1%). WTI Crude dropped -2,0% (-16,7%).
Overnight in Asia…
S&P future +47 points; Hong Kong +0.5%; Nikkei+1.0%; China -0.29988%
Asian shares are rallying on the late Friday Wall Street reversal and news that the record-breaking US government shutdown is nearing an end after a group of moderate Senate Democrats agreed to support a deal to reopen the government, Bloomberg reported.
Gold is perking up, supported by news that China (on top of building oil reserves) also resumed buying gold last October. Private (ETF related) gold buying also resumed last week.
To learn more about our AMC offering and how to invest in the trend-following, visit our Advisory web page.
If you like our Weekly, you will love our Daily!
Consider a subscription today. Discounts may apply!
To learn more about us and how we can assist you, check our website
Important Disclaimer
© Copyright by BentinPartner LLC. This communication is provided for information purposes only and for the recipient's sole use. Please do not forward it without prior authorization. It is not intended as a recommendation, an offer, or solicitation for the purchase or sale of any security or underlying asset referenced herein or investment advice. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situation, investment horizon, and particular needs. This report does not include information tailored to any particular investor. It has been prepared without any regard to the specific investment objectives, financial situation, or particular needs of any person who receives this report. Accordingly, the opinions discussed in this report may not be suitable for all investors. You should not consider any of the content in this report as legal, tax, or financial advice. The data and analysis contained herein are provided "as is" and without warranty of any kind. BentinPartner LLC, its employees, or any third party shall not have any liability for any loss sustained by anyone who has relied on the information contained in any publication published by BentinPartner LLC. The content and views expressed in this report represent the opinions of Marc Bentin and should not be construed as a guarantee of performance with respect to any referenced sector. We remind you that past performance is not necessarily indicative of future results. Although BentinPartner LLC believes the information and content included in this report have been obtained from sources considered reliable, no representation or warranty, express or implied, is provided in relation to the accuracy, completeness, or reliability of such information. This Report is also not intended to be a complete statement or summary of the industries, markets, or developments referred to in the Report.
Comments