Rick On: Changing Market Sentiment, Crypto, Snow and 2023…

It is clear if you look at the recovery in the markets over the past few weeks that sentiment has changed. But for the man-in-the-street feeling the pinch from inflation especially via energy costs it is not immediately obvious what has changed in the Real World.

The first snow of the year is hitting Zurich as I type this and the newspapers are scare-mongering over energy cuts or even blackouts: my favourite headline as a confirmed petrol-head was “Swiss to ban non-essential journeys in electric cars in the event of energy shortage” which seems a tad ironic after the European governments have been pushing the electric car agenda so hard…

Crypto has been hit hard by the headlines around FTX/SBF, after all, who would have thought that sending huge amounts of money to a bunch of 20 somethings in the Bahamas was not a cunning plan (!), but the expected contagion hasn’t really hit the mainstream markets which are all looking healthier: even the lowly Pound Sterling has rallied 20% from the early September lows against the US Dollar.

The question is why?

Well clearly the US Federal Reserve slowing the pace of hikes from 75bp to a potential 50bp next week isn’t exactly a huge policy shift, but it has left markets feeling that they have seen the peak of inflation and can maybe project a top for base rates in the near future (June next year according to the yield curve).

Then of course we have China: Did he jump or was he pushed? Well, it would appear that mass protests have forced a significant reversal of the zero Covid policy, the ruling party having lost a lot of authority in the process. The Government has also announced massive support for the teetering housing sector which was worrying markets, while there is a definite feeling that the Chinese are less likely to start a war with Taiwan while distracted internally, easing some of the geopolitical concerns.

Although many a Dictator has launched a conflict to divert the narrative from internal strife before, so in this, as in much of what I’ve typed above, I believe the markets are complacent. But for now, memories of the massive rebound in activity post the reopenings in the rest of the World are fresh in investors memories and the Eastern stock markets are buoyant (for now).

What is our outlook going into 2023?

I think that all very much depends on the Fed next week: there is a view that they risk strangling the US economy into a significant recession, which is shared not only by me, but by the long end of the US bond market which is heavily inverted. This, of course, would have Global repercussions.

Will this recent move in Stocks be carried through into the traditional Santa Claus rally?

Was the money lost in FTX mostly paper rather than physical as the lack of contagion would suggest, perhaps the only fallout will be less Lamborghini’s being sold to crypto kids in 2023?

Meanwhile we do know that the new fashion of Republican ESG-bashing will keep going into the next US Presidential election as it has been very popular so far, but will this have fall-out effects in the wider markets?
It is simply too early to know the answer to any of these questions.

So, as an investor what do you do? The traditional 60/40 portfolio lost about 10% in 2022 in Euro terms I’m told, while the returns from real-World cashflows, the working capital element of your portfolio, should have been highly insulated from this noise and any losses.
An investment in any of our receivable-backed notes or fund would have returned a healthy 3% over 3-month money once again, with very limited volatility as we’re earning a liquidity premium, not taking a credit risk.
If you don’t have an allocation to working-capital in your portfolio, then we very much hope you’ll get in touch.


Wishing you all a great festive period with your families.