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TPW Advisory Friday Musings: Iron Sharpens Iron
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Today’s title comes from the O line room @ dear old Duke. As a former member of that group, I always like it when the big fellas lead. Iron Sharpens Iron was a social media quote from a Duke O lineman noting that when new O line guys come in via the transfer portal they make the existing guys better – just like iron sharpens iron. A little research shows the phrase goes back to Biblical times and implies we are better together than separately much as one iron blade by itself gets dull, two iron blades working together stay sharp.
There are many such iron vs iron opportunities in policy and market circles these days – IMF/WB outlooks vs Larry Summers is one, US sell side equity analysts’ 2H earnings acceleration outlook vs bond investors positioning for 2H rate cuts, another. A big one is expressed by the trading range around S&P 4k that is getting long in the tooth as longs & shorts fight it out while Central Banks prepare to shift off the most aggressive rate hiking cycle in 40 years and an Asian growth liftoff competes with slower US and EU growth. TopDown Charts may encapsulate it best with a record reading of its Bullish Technical & Bearish Fundamentals index. Iron sharpens iron – I like it.
It has been roughly one month since the SVB failure and subsequent sale of Signature Bank here in the US and the shotgun sale of CS in Europe. These bank failures served to exacerbate the Fear, Uncertainty & Doubt (FUD) curtain we highlighted in our Monthly takeoff of the Wizard of Oz. These bank failures also served to reinforce recession calls & positioning across equity & fixed income assets, now augmented by worries about credit crunch, deposit flight etc. etc.
We continue to think much of this is FUD based fear mongering, now reinforced by the just released IMF and World Bank outlooks which likewise call for slow growth this year and incorporate the lowest 5 yr. forward global growth estimates (3%) since 1990. The two entities have clearly adopted the FI markets’ framework of a return to the low inflation, low growth world that predated Covid.
A good buddy & fellow market professional in attendance at the WB/IMF annual meeting reports pervasive negativity & FUD noting that a survey of those in attendance recorded 85% as expecting a recession in the next 12 months. Money quote: “Never seen such bearishness in 30 years of attendance”. Like Davos it usually pays to go against the WB/IMF consensus.
Jay Pelosky
Estrategista Global - TPW Advisory
Nova York, EUA
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