Everybody has a plan until you get punched in the mouth.

Abraham George Macro Musings

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Mike Tyson was not known for his intellectual prowess though he was the greatest boxer of all times during his peak. He had a great line which is widely used in the investment circles. He said, “Everybody has a plan until you get punched in the mouth.”

We all make investments to make profits. We also have mental ideas about where we should take profits and how rich we will become, but when things go to the contrary we have no idea about what to do. In most circumstances, the correct and simplest thing to do is nothing but we still want answers or explanations to why the markets went down. While the markets could have been long with weak players and not so strong fundamentals for the short term the real reasons could be elsewhere.

There is a tendency for market participants to seek answers in technical analysis as that is the most easiest place to give a visual explanation whether it is right or wrong. As I outlined in my previous letters, the markets could be on its way to a climatic top but that won’t happen in a straight line. Also there are so many inter-dependencies between different asset classes and other macro developments for which we do not have clear answers.

While showing some initial weakness stocks traded to new highs yesterday, the dollar was lower and commodities were up. Markets are anticipating probably a highly charged speech from the Fed this week. The driver for global markets higher was an FDA approval of the Pfizer vaccine. This FDA approval should supercharge and most likely set a standard for US mandates. And as with everything else global mandates should follow the lead of the US.

This is also happening at a time when downward revisions are coming in for Q3 GDP, in the wake of a resurgence in COVID cases over the past two months, and softening economic data. The FDA vaccine approval should arrest this tide, especially combined with the $4.5 trio of new spending that the house is evaluating this week.

It was in Nov 2020, when Pfizer first announced its vaccine efficacy. It sparked hope of the end of the pandemic, and that came alongside an election that was communicating massive fiscal spending. From that moment on, stocks have been soaring. It rallied close to 30% at a near 45 degree steep angle, the most trusted trendline participants rely on. Crude oil was the biggest beneficiary rising from $37 to $77 and 10 year yields rose from 0.80% to as high as 1.78%.

The FDA approval could provide a similar catalyst for hope on the pandemic outlook, and for markets in general. Given the recent pullbacks in crude oil and bond yields, they look more poised for a much bigger recovery. Oil has already posted a bullish outside day. What’s more confusing is that despite the Fed talking of exiting emergency policies, Fed yields are half a point lower than March highs.

I’ll follow up with technical outlooks on all four asset classes through another letter.

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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.