Iolcus Investments

22/02/2022

Markets can digest geopolitical risks: Syria, Hong Kong, Iran, Brexit etc demonstrate exactly that, but can Ukraine prove to be an exemption? While the Ukrainian crisis is rocking the boat, it still doesn’t seem to be the biggest market influence.

The blame for the disappointing equity market performance can be assigned to: an after bubble valuation bursting and central banks hiking rates from behind-the-curve.

Turbulence is spreading through the market and is no longer contained in its frothiest parts. Market observers have started muttering about a “silent bear market” and the general wisdom is that maybe the crowded value trades will save the day. But is that so? Learn more here:

https://www.iolcus.gr/en/the-ukrainian-excuse/

Markets can digest geopolitical risks: Syria, Hong Kong, Iran, Brexit etc. demonstrate this. Is...

21/02/2022

We want to thank XPHMA and their 1.500 readers for the honor of recognizing our hard work with their votes. We promise to keep building unique, modern and holistic asset & wealth management solutions for our clients

14/02/2022

Popular wisdom has it that there are two possible outcomes from the use of stock market derivatives: to increase or to dilute market risks. However, there is also a third one: Enriching their sellers and market makers. The more complicated they are, the more money they make for them.

Fast forward to today’s changing markets: most people understandably want to hedge their portfolios from the current high multiples of FAANGS or large caps, especially with a hostile Fed. A cheap way to do so is to invest in equal weights indexes, thus having no reason to buy into expensive derivatives: a mix of market cap and equal weight indexes could be a reliable investment strategy for 2022.

More importantly, it’ll be a cheap one considering the alternatives…

09/02/2022

Since the beginning of 2022 markets have taken almost everything in their stride:
- Rate hikes (as many as 5 during this year, possibly adding up to 50bps)? ✅Check!
- Fed overreaction after being behind the curve (just look at the 5-10 $Tsy segment)? ✅Check!
- More hawkish ECB (driving BTP and GGB yields to jump)? ✅Check!
- Multiple contractions in high growth companies (aka $NASDAQ) and reinvestment in energy, financials, and consumer staples (aka “value trades”)? ✅Check!
- Slashed valuations following disappointing guidance (See $META, $NFLX)? ✅Check!

So, excluding some “black swans,” such as fears of a Russian invasion in Ukraine, etc, markets have already discounted the big 2022 hurdles. Thus, if retail investors raising cash at the fastest rate since pre-COVID and having the lowest sentiment since 2013 isn’t the best recipe for a V-shaped recovery in stock markets, we don’t know what is. The economy remains strong, volatility seems contained and major financial accidents have not happened (despite the 40% fall in cryptos). If anything, a move higher by the markets could entail a FOMO-driven reaction by both institutional and retail investors.

05/11/2021

Most investors are understandably eagerly waiting for a market pullback to jump in. In terms of time since the last correction we are long overdue for one that is at least 10%. Meanwhile stocks like TESLA are exhibiting valuations (enterprise value) equaling 150 times their EBITDA - and just recently it overcame Berkshire (which is at a mere 4.6 times!)

But facts on the ground tell a different story: At the end of the 3Q US earnings' period, valuations (P/E) are actually declining by -4% while profit margins have just set another record. In other words, as the impact of and appetite for monetary and fiscal stimulus is fading, companies can cut their costs aggressively; which is a welcome trend for 2022.

25/10/2021

Is the stock market -especially in the US- in high multiples? Are inflated wages and raw materials negatively influenced corporate profit margins? Are forward prices discounting an interest rate rise which has already started? Are oil and gas prices an implicit tax on consumer spending? Is China growth stalling? For all these questions affirmative answers are sensible and consistent with today’s economic reality. Therefore, a reduction of equity exposure as a tactical strategy would appear to be the logical response; at least until the beginning of the new year.

Not so fast. The critical issue remains that all the aforementioned legitimate concerns have been factored in the current stock market levels - the implied weakness in consumer spending resulting from raw material prices and stimulus tapering could cap the Fed’s action for rate raises; the politically weakened US admin could water down any corporate tax hike; corporate EPS growth was revised downward, leaving ample room for positive surprises; and last but not least, the ‘unloved” rally we’re actually witnessing (actually SP500 is 2% off its all-time highs) points to more future legs, due to the liquidity sloshing in the sidelines. So, these factors mean there is a good chance of a year-end rally.

08/10/2021

Financial tools in the service of the environment. A very interesting approach by Prof. G. Skiadopoulos (in Greek)

Today in Η ΚΑΘΗΜΕΡΙΝΗ - KATHIMERINI (Sunday Edition, in Greek), I propose a new approach to combat climate change to the Greek authorities: Municipalities...

06/09/2021

There has been a lot of fuss around the infamous Delta SARS-CoV2 variant - but let's put things in perspective:
1) the Delta variant, in the developed world, is an economic activity issue rather than a public health one,
2) the Delta variant, as we move into the winter, will be relegated to a “contagious virus” that we will be living with, and
3) there is a difference between “controllable and traceable” transmissions versus the waves of unexpected incidents: in the former case consumer sentiment and spending go on unimpeded, in the latter they get disrupted.

The European summer, by various metrics (consumer spending, airline revenues, traveling mobility, etc), has economically classified the delta variant as a non-disruptive virus; despite European authorities’ rhetoric, their citizens didn’t bother much and have responded by traveling and spending. This fact, compounded with a more dovish central bank and a falling euro, bodes well for the EUROSTOXX universe to the year's end.

02/07/2021

Well known issues aside (ie volatility, no intrinsic value, impossible forecasts, political developments, etc), the question remains: is bitcoin an alternative asset worth investing in?

A limited and ready-to-afford exposure is not, trading-wise, a bad idea: $BTC ascends happen fast -meteoric rises happen over a couple of days- thus it remains an interesting trading option, if you can stomach its aggressive downturns.

29/06/2021

What can upend -rather than just reverse- the current bull market of all assets?

The answer is the Fed changing interest rates, in an attempt to dampen inflationary pressures in a US economy overheated by fiscal and monetary stimulus; the bet now is that the rate hiking period is coming dangerously forward, ie early 2023.

But let’s talk facts: the recent CPI jump is mainly due to seasonal factors, ie goods and services like energy, used cars, etc. The FED, aware of these factors' transitory nature, publishes a “core CPI” stripped of the extraordinary items since 2004, which remains rather stable.

Another critical factor: rate hikes aren't easy for the Fed; any major US recession was the result of the Fed's rate increases accidentally converting anti-inflationary policy to recessionary; even an innocuous tapering exercise 2 years ago almost derailed the US economic growth.

23/06/2021

What should investors buy?
-This million-dollar question keeps coming back: in overvalued markets in equities and bonds-compared to historical metrics- “Where should we invest?”

Answers abound: value stocks (vs tech), emerging markets, lower PE markets (European indexes), equal weight indexes etc; sadly, chasing “cheap” assets is not a sound investment strategy: for some reason they’re discounted and probably will remain heavily so…

So, let’s get back to basics: in the current market conditions, what could justify its premium? The simple answer: growth. Investing in growth companies remains the best possible alternative and the high-tech growth companies justify their valuation premium.

21/04/2021

*Έχουν ανέβει υπερβολικά οι αγορές; Πρέπει να πουλήσω;*
Για να είμαστε ειλικρινείς, μάλλον οι ερωτήσεις είναι άσχετες μεταξύ τους αλλά ας βάλουμε τα πράγματα σε μια σειρά: για να έχουμε μια διόρθωση, απαιτείται μια πτώση στην καρδιά των παγκόσμιων αγορών, π.χ. του S&P500 και του Nasdaq. Οτιδήποτε άλλο (π.χ. αδυναμίες σε συναλλαγματικές ισοτιμίες ή πτώσεις στα χρηματιστήρια αναδυομένων αγορών κλπ.) δεν είναι σημαντικό. Μια διόρθωση στα αμερικανικά χρηματιστήρια μπορεί να συμβεί μόνο όταν (και όχι εάν) χάσουν το κύρος τους οι 2 πυλώνες που τα στηρίζουν: η νομισματική και η δημοσιονομική στήριξη. Αμφότερες συμβάλλουν στην αύξηση των αμερικανικών εταιρικών κερδών (EPS), ενώ ταυτόχρονα οι εταιρίες χρησιμοποιούν τη δύναμη τιμολόγησής τους και διευρύνουν τα περιθώρια κέρδους τους. Άρα δε μιλάμε για μια αγορά με υψηλά P/E (που σίγουρα είναι) για το επόμενο διάστημα, αλλά για μια αγορά που για τους επόμενους μήνες αναμένεται να είναι ακόμα υπό την επήρεια ισχυρών αναβολικών.

*Πότε θα σταματήσει το ράλι στα χρηματιστήρια;*
Όταν οι “πυλώνες” μετατραπούν από βατήρες σε βαρίδια. Αυτό θα συμβεί όταν ο πληθωρισμός ανακάμψει και δεν θα είναι “μεταβατικός ” όπως διακηρύσσει η FED. Εάν οι αγορές συνειδητοποιήσουν ότι οι κεντρικές τράπεζες σφάλλουν στο μέτωπο του πληθωρισμού, θα πουληθούν επιθετικά και τότε, οποιαδήποτε περαιτέρω στήριξη – νομισματική ή δημοσιονομική- δεν θα είναι απλώς ανούσια, αλλά επικίνδυνη.

---------------------------------------------------------

*Are markets expensive? Should I sell?*
Well, maybe this is irrelevant. Let’s put things into perspective: to get a correction, a fall in the heart of the world markets i.e. SP500 & Nasdaq is needed; anything else (i.e. emerging currencies or stock markets weakness etc.) is irrelevant. A correction in the American stock markets can happen only when (not if) their two pillars are discredited: fiscal and monetary stimulus. Both are feeding the US corporate EPS growth and companies wield aggressively their pricing power and high margins. So it’s not a market of high forward PEs (which it is indeed) but it is expected on high steroids for the next months.

*When will the stock market rally stop?*
When the “pillars” instead of a market pusher will become a market sinker! It will happen when inflation will prop up and won’t be as “transitory” as the FED preaches. Should the markets realize that the central banks are mistaken on the inflation front, then, they will sell aggressively. Τhen any additional fiscal or monetary stimulus won’t be just useless, but dangerous.