In this legendary Stockhead series, investment manager James Whelan from VFS Group offers his insights on the key investment themes and trends in domestic and global markets. From macro musings to the metaverse and everything in between, Whelan offers his distilled thoughts on the hot topic of the day, week, month or year, from the point of view of a damn fine professional money manager.

 

Happy Lunar New Year to all who observe!

Firstly a note that I’m hosting a webinar on February 15th with some great guests, including Stockhead, talking about the year ahead and how to navigate it. Should be a great evening so please RSVP via this link and I’ll see you there.

Yes, another year passes and on January 22 we charge into the Year of the Water Rabbit. The team at CLSA ran some tongue-in-cheek research on the Feng Shui Index and it’s showing some volatility for HK stocks (hat tip to David Ingles @ Bloomberg for bringing this up).

recession 2023

It’s all in good fun of course but, funnily enough, it’s similar to my view of the US market. Choppy ride to get us around to about where we started. Tough for me being a Rooster, mind you.

However, the more I see conversations about recession, and what happens in a recession, the more I see it as being about as priced in as it’s going to get.

Those familiar with me know one of my grand theories is the ‘Theory of Thing’ which states that once something has been talked about enough it loses its impact on the market. Debt ceilings and fiscal cliffs are great examples of this. “EVERYONE PANIC WHILE WE TALK ABOUT THIS SAME THING SO MUCH THAT IT JUST BECOMES PART OF THE DAY!!”

The sky never seems to fall, regardless of how many people want it or predict it to.

Therefore I hereby coin a phrase for this year called the “Shrugged Shoulders Recession”– even if there is a recession, no one important will care that much. Even Goldman Sachs Global Analysis, regarded as some of the best in the business, see the US as narrowly avoiding a recession. That’s interesting. They also see no cuts by the Fed in 2023. Maybe not all good news there, then.

 

Fed vs the Bond Market

The smugness of “bond people” has occasionally grated me a little but the ability for their market to usually, with accuracy, predict our market is still a thing of beauty. As mentioned last week there’s a difference between the messaging of the Fed “higher for as long as it takes” vs the bond market which is predicting cuts at the back end of the year.

Someone’s going to be wrong. Bloomberg did the work for me at the end of last week by putting two key quotes next to each other:

In the red corner, Jeff Gundlach, CIO of DoubleLine Capital LP:

“My 40 plus years of experience in finance strongly recommends that investors should look at what the market says over what the Fed says,” Gundlach said on a webcast Tuesday. That builds on a tweet he sent last week: “There is no way the Fed is going to 5%. The Fed is not in control. The Bond Market is in control.”

And in the blue corner Minneapolis Fed president Neel Kashkari, talking up the weight of the Fed:

“I’ve spent enough time around Wall Street to know that they are culturally, institutionally, optimistic,” Kashkari replied. “I said it seemed almost as if the markets were playing chicken with the Fed.” Kashkari laughed. “They are going to lose the game of chicken, I can tell you that,” he said.

With inflation data coming in a little softer but showing that inflation has definitely peaked and now we start the slide to normality I’m just happy to participate in the market, and the rally. Speaking of rallies, here are some stats by Carson.

recession 2023

Always grain of salt this type of thing but historically, if you get green on the last few days of the year, green on the first few days of the year and green in the first month FOLLOWING a down year then it’s always a good year.

And with a 20% hit last year we sure could use it.

We’re about to see if the predictions of a corporate earnings recession come to fruition too. Again, so widely talked about its impact is minimal by now.

 

New/bigger position

And finally we took and added to a position of being “long Australia” by buying the iShares ASX 200 ETF. Code is IOZ.

I opted for index weight instead of equal weight because I actually want the added exposure to our mining stocks. It’s the best way to play the China reopening if you don’t feel good owning Chinese names of which a bigger and bigger stake is being taken by the Chinese Communist Party.

Also as mentioned last week, we don’t have enough of the stuff to do what we need to do. Quick check on inventories at the LME and it’s dire.

Stay safe and all the best,

James.