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Crusting Time...

BentinPartner Weekly

Dear Reader,

Over the past week, US stocks shed gains from the first week of the year, dragged down by weaker than expected economic data, fears of virus mutation and some nascent bond markets jitters that followed some inflationary and Fed tapering concerns.

These bond concerns took the wind off the announcement by President Biden of a first and larger than expected stimulus of USD1.9trn (this year’s fiscal deficit will now exceed USD3.1trn or 30% of GDP over two years) and was perhaps considered as too much of a good thing… Others argued that the tepid market response pointed at risks that the deal could still face headwinds at the Senate.

Fed President J. Powell noted that although US debt formation was not on a sustainable path, it was sustainable and in response to the 20bps or so back up in yields from the early part of the week, he quickly pushed back saying “Now is not the time to talk about exit. I think that is another lesson of the global financial is to be careful not to exit too early. By the way, try not to talk about exit all the time if you are not sending that message because markets are listening…” In other words, he advised to stop thinking about talking about tapering…

Lat week, economic releases came out mostly weaker than expected.

· Over the last quarter, the US trade deficit reached a record at USD572.9bn, up 60% from the same quarter a year earlier.

· US consumer prices increased solidly in December amid an 8.4% surge in the price of gasoline that accounted for 60% of the up move in inflation.

· Application for US jobless claims surged last week as well and by the most since late March, pointing at continued labour markets pains.

· Finally, on Friday, retail sales decreased 0.7% in December (vs. expectations for no change) and US small business optimism slumped in December to a seven-month low as infections spread at a record pace. Applications to start new businesses also dropped sharply, adding to the pain of US mortgage rates climbing to their highest in two months.

The earnings season kicked off on Friday with JPMorgan, announcing that it made more money in Q4 than it ever did after trading results surged, sending its profits for the whole year to USD29bn, the most ever for a single bank, despite or because of the exceptionally favorable trading and credit environment, set in place following the pandemic. The bank signaled more optimism about borrowers’ ability to pay back debt now. However, lenders were said to be struggling to understand how residential mortgages will perform this year because borrower assisted programs during the pandemic clouded who will be able to pay their mortgages after the support program ends…. And banks (along with the entire market) traded mostly and uniformly lower on Friday.

The euro weakened on Friday despite the perspective of more fiscal deficit and debt monetization (with the Fed’s “thinking” about tapering essentially written off from its agenda) after three ministers put the future of Italian Prime Minister Giuseppe Conte in doubt. With Italian government lasting on average a little over one year since the second WWII, rather than being thrown into a crisis, perhaps the Italian government was brought to its most natural term but Italian bond spread still widened by 8bps. The ECB meets this week and no doubt has the ammunition needed to rein in further spread widening.

Gold and precious metals were not immune to last week’s slump. Still, the asset class reigns supreme over the “long view” consideration of where we are and where we are likely to go in terms of deficits, debt monetisation and possibly inflation down the road. The Big picture there has very little to do with moving averages’ cross overs… and it does not take a mentalist to know that the Gold bull has an uncanny ability to run the fastest when carrying the least number of investors on its back.

And for those still wooed by the syren of cryptocurrencies, here is a link to a very serious, articulate, well documented and peremptory warning about Tether, a so called “stablecoin” trading on “unbanked” exchanges that walks, and kwacks like a fraudulent scheme and that is probably also the major factor underpinning the recent ascent of bitcoins.

We will summarize the issues in one of next week’s daily commentaries.

Over The Past Week…

S&P500 dropped -1,5% (0,5% YTD) while the Nasdaq100 sold off by -2,2% (-0,6% YTD). The US small cap index gained 1,5% (7,5% YTD).

CBOE Volatility Index rallied 12,9% (7,0% YTD) to 24,34.

The Eurostoxx50 dropped -1,2% (1,7%), outperforming the S&P500 by 0,3%.

Diversified EM equities (VWO) gained 0,1% (4,8%), outperforming the S&P500 by 1,5%.

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,9% (1,0%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,0% (0,1%).

10Y US Treasuries rallied -3bps (17bps) to 1,08%. 10Y Bunds dropped -2bps (3bps) to -0,54%. 10Y Italian BTPs underperformed rising 8bps (7bps) to 0,61%, underperforming Bunds by -10bps.

US High Yield (HY) Average Spread over Treasuries climbed 2bps (-10bps) to 3,50%. US Investment Grade Average OAS dropped -2bps (-2bps) to 1,00%.

In European credit markets, EUR 5Y Senior Financial Spread climbed 4bps (4bps) to 0,62%.

Gold dropped -1,1% (-3,7%) while Silver shed -2,6% (-6,2%). Major Gold Mines (GDX) sold off by -5,5% (-4,2%).

Goldman Sachs Commodity Index gained 0,8% (5,1%). WTI Crude gained 0,2% (7,9%).

Have a nice week ahead and stay safe.


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Marc Bentin, BentinPartner GmbH

Founder, Chief Investment Officer

BentinPartner GmbH is a Swiss registered independent financial adviser.

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