‘3700, Possibly Lower,’ Analyst Who Nailed S&P In 2018 Says

"It looks as if the market has lost its tolerance for non-zero rates," Deutsche Bank's Aleksandar Kocic said Thursday, as US equities struggled through another arduous session. Whenever the subject is a stock rebellion against Fed tightening or, more specifically, the concept of the "Fed put" and where it's currently struck, references to Kocic's 2018 notes are obligatory. I'll venture briefly down memory lane using a familiar summary. Kocic, some readers will undoubtedly recall, had perhaps t
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4 thoughts on “‘3700, Possibly Lower,’ Analyst Who Nailed S&P In 2018 Says

  1. The Fed is focused on financial conditions rather than stock prices, although admittedly the two are correlated. Credit spreads have widened out, but credit is not yet too tight. The clue that this cycle of tightening is likely to be shorter than some think, is the external value of the US $. DXY is at a level that can cause a financial accident. No the Fed won’t have a put strike price close by for a stock market correction or bear. But you had better believe a credit event will cause a rally in US Treasury and a pull back by the Fed from a rapid tightening cycle. We are a lot closer than M EL Erian or Larry Summers thinks. This is a case of speed of tightening being as important a factor as the amount of such tightening. Could it be crypto? Housing? Consumer spending? EM finances? How about all of them? The ivory tower guys still have not learned.

    1. I’m very hopeful that you’re correct, Ria. I’m also hopeful about resolution of the Russian-Ukraine war in a reasonable amount of time, which would reduce pressure on the price of oil and gas products and provide some good news.

      I saw an article about the loss of a Russian battalion of equipment and soldiers while crossing a pontoon bridge over the Donbas River. The volume of the loss is probably exaggerated, but it’s still a significant loss, and with broad media exposure. The Russians may manage the news at home, but they’re laughably unsuccessful internationally.

      Even worse than particular losses, Russian soldiers do not seem to be keen to fight. They’re undisciplined and slow to execute orders. Contract soldiers who have served their time are quitting after fulfilling their contracts because the battle with Ukraine is not officially declared as a war. In some cases, individual units are openly disobeying orders. I’ve also heard western military experts suggest it will be difficult for Russian forces to last through the summer due to the volume of equipment losses and casualties.

      If matters continue to move in the direction of disabling Russia’s conventional war-fighting capacity, it seems the Russians will eventually have to get serious about peace talks. The question lurking in the background for me is the extent to which Putin will wish to assert his will when it becomes obvious his army cannot hold ground in Ukraine with conventional weapons. Will he choose to use a nuclear weapon? One more parallel question: Will Russian generals and other government leaders have the stones to take matters into their own hands and say “Nyet” to Putin?

      The Russia-Ukraine war, which is such a terrible event for the Ukrainians and inspires our compassion and support, also creates worry for the west. But one can reasonably hope questions about the outcomes may be answered before the Russian winter comes. Thankfully, the west is deeply engaged in supporting Ukraine, and the Ukrainian military is a sterling example of the light of freedom burning brightly – a genuine wonder.

  2. CNN’s fear and greed index hit 6 (extreme fear). Curious to know where bofa’s bull & bear index stands, as I assume it also just triggered a buy signal.

    Having said that, I’ve already slightly added to my positions on the way down (though still sitting on a monstrous cash position as I can’t find any truly appealing buys). Not comfortable adding more. A ~20% decline in spy may have had much greater appeal in prior bears when it was accompanied with much lower multiples for stocks as a whole, and when stocks across the board sold off hard. Compared to many prior sell-offs, the current one has impacted large caps to a greater than normal extent, yet in general there are few (if any) worthwhile buys to be had, both among the beaten large caps and elsewhere.

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