Unbelievable but true!

The announcement of a cut in the inflation rate (+0.3% in October instead of the 0.5% expected by economists, and 7.7% at an annual rate at the end of October, instead of 8.2% at the end of September) catalyzed a rare stock market . growth. In a few hours, the Nasdaq rose by more than 7%, and the S&P 500 index by 5.5%; the euro jumped by more than 2% (and 4% during the week!); The CAC 40 advanced 2% as it fell ahead of the release of US statistics and advanced again in futures on Friday, November 11 at 08:00. Thus, it crossed a major triple resistance: the one-year moving average, the top of the bearish tunnel built for one year, and the bottom of the bullish tunnel built for 3 years. This pass to be confirmed should of course be confirmed in the coming days. But the technical reality is there: the share price seems to be returning to an uptrend and is back to the pre-Ukraine crisis level. 9 months after the start of the Russian offensive on Ukrainian soil. The stock market wiped out the energy shock and the biggest bond shock ever. Unbelievable…

Remember that the pattern of what should be called a trend reversal, is the expectation that the Fed will raise rates by 50 bps instead of 75 bps, what the market sees as a change in monetary policy and a return to a hyper-liquidity situation. We have already written: the market welcomes the monetary easing orchestrated by the FED without worrying about the damage that the increase in rates is bringing in the real and financial sphere. We always consider it going too fast. The market does not want to see a reality that is not favorable for stocks. On the other hand, he believes in virtual reality, created in what we call the “financial metaverse”, which allows prices to rise. But the value of stocks is deteriorating.

The distinction between asset value and price has been our credo for decades. Our caution in the markets is based on the fact that the value of shares has objectively declined, due to the deterioration of two main parameters: future cash flows and the discount rate. Future Streams: Since the beginning of the year, and much of it since the outbreak of war between Ukraine and Russia, the world, and especially Europe, has suffered an energy shock. This energy shock is accelerating decarbonisation and the rise of economic sovereignty, the desire to “produce nationally” and be less dependent on the outside. The necessary fight against global warming and the re-conquest of economic independence have a significant cost of inefficiency, which will result in persistent inflation and a decline in corporate margins. Future flows, like it or not, today are lower than a year ago.

Discount rate : We have said and written before, but the problem is not necessarily inflation, but its causes: the dysfunctions of the real economy since the health crisis and the Ukraine crisis. They produce inefficiency and, above all, great uncertainty that translates into an increase in the risk premium. This results in a decline in the value of the stock.

The very real deterioration of these two key parameters affects the value, the determination of which remains theoretical. This is the problem and in a way the main paradox. Investors do not want to see the invisible value, while the financial metaverse is made precisely of unrealistic visions, disconnected from reality.

The true reality is that the world has become extremely unstable and therefore unsafe. US global dominance is less obvious. It is disputed by China and the European ally has a lot to do with Russia. The unprecedented accumulation of debt raises fears about the solvency of states. De-globalization is destabilizing a large number of countries and companies. Global warming too. Currency volatility also tells a lot about the overall volatility of the system.

Despite all this, the CAC 40 is valued at 6635 points this Friday, November 11th morning, and the bots can thus aim for 7000 points and more, why not. The temperature has shown more than 30 degrees several times in October, however we are no longer in the beautiful season. Robots don’t know that. After a 1000 point rise in the CAC 40 since early October, more than 20% in $, the stock should be sold.

Investor recommendation: we are still very underweight the stock for a CAC 40 above 5,650 points.

Trends in interest rates and foreign exchange markets: Government bond rates fell due to falling inflation rates in France (2.59%) and the US (3.8%). The euro rose 4% in a week, a rare volatility.

Recent trends in commodities: The price of oil rose on the announcement of an easing of health restrictions in China.

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