July is coming to an end. “At last”, we say, as it has been “Shake, Rattle and Roll”! We are repaying some of the glorious rewards paid to us in June. Since June 1st, the Dow Jones Index is about flat, the S&P 500 is up 5% and the NASDAQ Composite is up 7% or so. Looks reasonable, but there were moments of serious doubts in this two-month interval...

The VIX, otherwise nicknamed the “Fear Index”, tells more of the story – starting the interval at a reasonable level of 15.50, it is now somewhat higher at 17.50, but we saw it cross the 25 level on the way... Sweaty palms indeed, summer heat perhaps...

Oil, our own gauge of re-opening activity started on June 1st at $66 for a WTI barrel, spiked to $77 on July 6th only to crash back to $65 on the 20th... COVID was gone for a moment, then we realised it wasn’t... nice to see it back up at $73 as we write these words...

One scare we avoided was from Bitcoin. Starting June 1st at $36’000 it traded briskly back to $40’000, then collapsed below $30’00 and now, back at $40’000. Hmmm... We remain sceptical as to any true intrinsic value therein.

The DXY, being the trade weighted US$ exchange rate, is at 91.90 up about 2% in this jumpy period. We had been of the view that it ought to rise towards a 100 level as the US economy continues to outrun the others. We hold this view.

Bond yields resumed their collapse. 30-year Treasury “Long Bond” yields now 1.90%.

We reiterate our view that there is no real inflation or a true threat thereof in the wings. We even see in the TIPS, the inflation hedged Treasuries that the implicit inflation actually is negative...

Powell and the Fed appear unconcerned... They may consider tapering a little sooner, if the economy will be deemed to be strong.

Q2 earnings’ season is upon us. Wow! The reports published so far have largely been substantially ahead of expectations, P/E ratios are falling even as stock prices keep rising. Look at GOOGL, it is at an all-time high after exploding through expectations, its P/E at a lofty but arguably cheap 46X. AAPL at 39X looks frankly cheap, especially when the effective P/E of the Long Bond is at over 50X...

If you are concerned that the stock indices are at all-time highs, we will remind you that 20% earlier they were also at “all-time highs”. We believe in efficient markets and find them to be the best predictor of the future – the Bonds are telling us not to fear inflation, the soggy US Dollar is telling us that the geopolitical risks whilst present are not at scary levels. Oil is telling us that the economies are turning. We are burning some 120Million barrels of the stuff every day! (we were at 80 million of the same sized barrels some 20 years ago, before windmills and solar panels invaded our landscapes!)

So where do we stand now? The world is in the process of electrifying... The fossil fuel consumption may be contained, hopefully even reduced. But this will take time. We think that the next shortage on this route might show-up in copper. At the end of last year, we advocated looking into Hydrogen alternatives to oil, we suggest one takes a look at the pressures building in the copper sector. For example, there is a copper ETF, [COPX]. Or look at specific stocks, say Freeport McMoran [FCX], Rio Tinto [RIO] and the likes. Southern Copper Corp [SCCO] has a P/E of 33x and pays a dividend of over 5%. These are not recommendations, just a sectorial thought to consider... We are convinced that the trend we are in will continue and spread broadly across the financial globe for a good stretch ahead.

There is little to no risk of inflation as we read in the markets. Businesses are adapting well to the new order of pandemic economics. We stay with Tech and Life-Sciences. We keep our energy exposures, old style oils and new energy technologies. We suggest tightening your seatbelts into August. Albert Einstein had said that he never thinks of the future – it comes soon enough 😊