Ebola. It is still spreading like wildfire in West Africa, but the impression is that it has slowed down. For the first time since the beginning of the epidemic, not only the new areas affected are counted but also the counties where the virus seems to have gone back into hiding. The problem is that many are fleeing the countryside, the initial epicenter of the crisis, and moving to the ruined suburbs of Monrovia and Freetown, where the rate of contagion could be even greater. There is concern about the possible expansion towards Bamako, the capital of Mali which is a few kilometers from Guinea, and towards the Ivory Coast, which borders Liberia. In Paris there are many Ivorians and Malians who have close contacts with their country of origin. At the moment, however, there are no cases and the defenses have been raised significantly.
The arrival of Ebola in America and Europe and the sensational failures in the response of the political and health authorities have transformed the stock market correction, initially due to the European crisis, into a wave of panic in its own way justified. It is enough to see the economic effects that the epidemic is producing in the affected countries to understand the danger it could have for us too. However, the situation has returned under control, the guard has been raised and stock markets have returned to pre-panic levels.
Ukraine. Voting takes place on Sunday and the expected results should be positive. We will probably see a strengthening of the centrist and pragmatic component led by President Poroshenko at the expense of the radical and ultranationalist one that has elected Yatsenyuk as prime minister. A reduction in conflict on the ground is a prerequisite for the dismantling of sanctions, which will still take a few more months, however. To date the sanctions have hurt Russia more than Europe economically, but Europe's resilience against stagnation is much lower than Russia's against even a severe recession. Putin knows this very well and could be induced to raise the bar if no concessions come from Ukraine.
Brazil. Here too we vote on Sunday. The weight of these elections is enormous, not only for Brazil but for all emerging markets and also for us. The alternative is analogous to that experienced by India in the May elections. On the one hand the continuation of a policy of stagnation and populism, on the other a strong pro-growth orientation. After Modi's victory, the Mumbai stock market soared for four months. The performance measured in euro is 40 percent since the beginning of the year and the scenario remains very positive. In the event of Neves' victory, the San Paolo stock exchange will open on Monday with a very strong rise, but it will still have to be bought very aggressively. The polls indicate a close-to-the-wool ending. Some, in Brazil, have already bought. The increase in the event of Neves' victory will in fact be larger than the decrease in the event of Rousseff's confirmation. After all, the São Paulo stock exchange is cheap.
Japan. Abenomics has lost much of its initial momentum, but the results of the devaluation of the yen on the profits of Japanese exporters are dramatic. For its part, the Bank of Japan is much freer in its reflationary monetary policy than the ECB. The Tokyo Stock Exchange has lower valuations than the average for developed countries.Georges Seurat. The Seine and the Grande Jatte. 1888.3 If the devaluation of the euro continues, there will come a time when it will be good to leave Japan and enter Europe. That time, however, still doesn't seem near.
High yield. Warren Buffett has done great things for his shareholders with his passive investing technique, but it has been tarnishing lately. Who hasn't missed a beat for years and appears ever more brilliant and lively is Carl Icahn, the activist who at the age of 78 enjoys making money more than ever by finding sleeping companies to wake up and make run. Icahn is quickly accumulating a large amount of CDS on high-yield bonds. CDSs are insurance against falling bond prices. It's expensive insurance, but Icahn knows what he's talking about. In 2008, still betting on a descent of high-yield bonds, he increased his initial investment tenfold.
Euro. The pyrotechnician Icahn is naturally also short of euros. For our part, we do not know if the race to the bottom has ended or if it is destined to continue. What would seem really strange to us, however, would be a strengthening of the euro. Reason enough, it seems to us, to continue to keep everything possible in dollars.
here. In addition to the elections in Brazil and Ukraine, the weekend will be dedicated to studying the results of the Asset Quality Review of European banks. He will remember from his school and university days that everyone suffers before an exam, and only those who fail after it suffer. Since the promoted will be the vast majority, banking, understood as a sector, should, at least for a period, perform better than the other sectors. The stress test, once completed, will contribute to the acceleration of the purchases of bank assets by the ECB, another positive fact.
Oil and airlines. In Europe, where prices are regulated and companies are state-owned, certain correlations work less. In America, by contrast, the airlines immediately derive great benefits (including on the stock market) from a weakening of crude oil prices, while the oil companies obviously suffer. However, there are some interesting misalignments every now and then. In this time of weak oil, airlines are strong, but still have potential from ongoing restructuring. Oils, for their part, are excessively weak (Icahn, so to speak, is watching them with interest). Here is a moment, therefore, in which both airlines and oil could be held in the portfolio with a favorable asymmetric risk.
Volatility. We've had a lot of it and its cost has gone up. But remember that volatility is itself volatile. Nothing prevents the next period from being relatively calm.
Strategy. The golden season of equities is slowly coming to an end. Just as slowly, in the coming months, moments of strength will have to be used to reduce exposure. There is no particular rush and, above all, it will be necessary to avoid selling in negative moments, such as last week. But it will have to be done. Even with slowly diminishing exposure, the stock exchanges will still be very attractive to those with the patience to pick overlooked stocks or those subject to sudden sell-offs. For 2015, therefore, fewer ETFs and more attention to the individual names in the portfolio.
