Ladies and Gentlemen, welcome the Bear Market!

14 ביוני 2022

INVESTMENT CONTEXT

• The worst trading week since January was followed by yet another market meltdown on June 13, with Nasdaq shedding 4.68% after dropping more than 7% in the previous 5 trading days, and S&P 500 finally entering bear territory just 2 years past the last one
  
• The U.S. 10-year Treasury yield, regarded as a global benchmark for borrowing costs, hit 3.29% - its maximum since 2011, while the 2-year Treasury yield surged to 3.23%
  
• Russia claimed to have taken control of 80% of Severdonetsk, the last major Ukrainian foothold in the country's East
  
• Beijing, Shanghai and other cities were put under new COVID-induced restrictions
  
• The UK economy contracted 0.3% in April, missing analyst expectations of 0.1% growth
  
• BTC collapsed to USD 20k early on June 14, on news that Binance temporarily suspended withdrawals following Celsius pause on all redemptions due to "extreme market conditions"
  

PROFZERO'S TAKE

• The great bear market of our time has finally begun, with S&P 500 plunging 20% from the 4,714 peak touched on January 11 this year. Predictably, as soon as the technical indicators were breached, droves of short positions triggered, plunging asset prices even further. No corner of the equity market was spared, and the brunt of the sell-off was borne by Growth assets in the tech-intensive Nasdaq index. ProfZero has been repeatedly preaching caution, calling the attention of investors on the combined industrial shocks that are bringing one of the longest bull markets in history to an end. The energy and commodity crisis has unearthed the risks tied to stretched supply chains and concentrated sourcing (ProfOne has also spoken extensively about it - and the looming risk of falling yet into the same trap down the energy transition), functioning basically like a fuse to the inflation time-bomb. All that came after - the equity rout, the reversal of ultra-loose monetary policies, the widening of fixed income market spreads - that is just the natural reaction of financial markets to a collapse in industrial fundamentals.
  What that tells us? ProfZero sees that the real economy is now in the driving seat - for good. With that, fundamentals come once again into play: inflation tempering prices, supply chains shaping revenue/cost functions, cash flows dictating performance.
  What a great time to open school books once again.
  
• On May 13, ProfZero anticipated that higher interest rates would put stress on weaker and more indebted actors - countries (Italy, Greece), companies and individuals. A heating in the credit market is now at the very core of ProfZero's radar - especially in the Eurozone, where the ECB will put to test the appetite of investors for Italian debt at one of the worst times
  

PROFONE'S TAKE

• Thinking about the energy of future, today ProfOne’s eyes are set on uranium, whose price is hitting historical highs since the Fukushima catastrophe in 2011 and encouraging old uranium sites in North America, Australia and Africa to reopen. Nuclear energy, recognized by EU as “green” activity, is viewed as a key part of the EU's energy transition plan. Amidst growing uranium demand fuelled by de-carbonisation politics; rush for energy security; and desire to replace deliveries from Russia (which accounts for 6% of the world’s uranium), the supply side is slow to fit into. Yet over and above shortage of qualified labor and supply chain disruptions, ProfOne reminds that 40% of the world uranium is produced by Kazakhstan and mostly shipped via Russia. The energy security equation will thus have to deal with yet another potentially risky supply chain -while in the meantime of course trying to find sustainable ways to dispose of nuclear waste