I'm dying and everyone is leaving me alone. Argante, Molière's imaginary patient, occasionally suffers from headaches and stomach aches like the majority of human beings, but he always thinks he is one step away from the end. He surrounds himself with doctors and pharmacists and wants to marry his daughter not to a noble or rich man, as a normal French middle-class father of the seventeenth century would do, but to a doctor, in order to always have one ready at home.
The doctors, whose professionalism consists in giving Latin names to vague indispositions and in always prescribing purges and bloodlettings, find in Argante the ideal patient, the one who never dies and never recovers, has no serious illnesses, is ready to undergo any extravagant treatment and pay regularly. Beraldo, Argante's brother, thinks that doctors are of little use and suggests leaving it to nature. Tonina, the smart servant, claims that a good roast and red wine are better cures than those recommended by doctors. The happy ending will be a compromise.
Instead of accepting the boring doctor proposed by her father, the daughter will marry her beloved, who undertakes to study medicine. Argante, for his part, will instead be proclaimed a doctor by relatives and friends with a ceremony in Latin. In this way he will be able to treat himself, saving a lot of money. The Imaginary Sick is from 1673, but three and a half centuries later it still makes you laugh and preserves its subversive charge of ferocious satire both of patients and of doctors and, in the end, of patients who become doctors of themselves.
The comedy becomes even funnier if it is set again in the world of economics and finance, with the markets as patients, economists and central bankers as doctors, mathematics instead of Latin and, in the end, with the markets becoming the economists and policy makers themselves and often prescribe counterproductive treatments for invented or misdiagnosed diseases. With all due respect to the great advances in medicine and the economy, the underlying psychological dynamics are always the same.
The fear that makes us lose the light of reason and common sense, inventing problems where there are none and not seeing the ones that do exist, entrusting ourselves to the charlatan with the solution always ready were among us in the France of the Sun King , are among us today and will also be so when artificial intelligence will design our portfolios and will be the protagonist of the markets. And so until three weeks ago the markets invented a deflationary disease just as inflation, at least in America, was making sharp jumps even in the core part, the one that excludes oil and food.
Jumps, due to the increase in rents and medical expenses, which appear not to be one-offs and lead us to wait with the stopwatch in hand for the moment when someone will jump up and say that we have serious inflation problems. And while the probabilities of recession were calculated, increasing them every day, the economy recovered in America also in manufacturing and remained in a more than decent state in Europe. And while the markets, having become their own doctors, were prescribing profoundly negative rates in America too as a cure for a non-existent recession, the real doctors of the Fed (who, like all doctors from Hippocrates onwards, although fallible, almost always have understood something more than the sick) kept toying with the idea of further rate hikes.
Given the damage that the markets managed to inflict on themselves in this review of 2008 which took place in January and February, it is however very possible that the Fed will not raise rates on March 16th. In this case, the great recovery underway will not stop with profit-taking when Draghi will illustrate the new expansionary measures of the ECB next week, but it will still be able to continue. The indices will slow down at some point. However, those who have so far remained out of the recovery still have the opportunity to participate by riding in particular the sectors and titles that were most thrown away in the weeks in which the end of the world was thought of.
Energy stocks immediately come to mind, but we don't think we should focus on these. In the first place, the recovery of oil will be slow, because it will face the wall of huge stocks to be disposed of. Secondly, oil prices already incorporate quotations between 50 and 60 dollars. Thirdly, many companies are also exposed to natural gas, which continues to plummet and whose structural glut is even more serious than that of crude oil. Instead, the stocks on which to focus seem to be cyclicals (oversold due to the imminent invented recession), pharmaceuticals (sold out of fear of Clinton) and banks (sold in America on the imaginative hypothesis of a rate cut and in Europe on supposed flight of depositors).
Among the cyclical ones, cars and airlines stand out, sold more precisely in the days when oil dropped the most (in fact benefiting them). Steel also stands out thanks to the imposition of customs tariffs of 266 percent on imports from China recently introduced, it should be noted, not by the protectionist Trump, but by the Obama administration. On the other hand, we don't think classic defensives should be bought, if anything, sold, primarily utilities. Not that things are worse than before, but if the indices don't have the strength to go up much (and they won't) the defensive ones will have to go down to make room for the recovery of the cyclicals.
Later in the year, when everyone has re-entered the market (perhaps reluctantly), the time will come when they will go back to looking at the glass half empty. Brexit, the Fed with its hikes and some setbacks by China or the American economy (Europe will have a more regular trend) will offer the starting point for a new correction. At that point the cyclicals will go down again and the defensive ones will regain strength. It won't be an easy year, but the pattern is clear enough. Optimism has long since disappeared and the underlying tone is pessimism, forced however to change his mind every time reality denies it and that is quite often.
In a market dominated by positioning, it therefore becomes crucial to understand when portfolios are too empty or too full. At that point even modest changes in the speed of the economy can trigger violent reactions. We remain neutral on the dollar around 1.10.
