Epic correction. China destruct. Credit divergence. [The Week Ahead July 10, 2023]

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Get the transcript here: https://completeintel.com/epic-correction-china-destruct-credit-divergence
In this episode of the Week Ahead, Tony Nash moderates a panel discussion with Brent Johnson, Albert Marko, and Michael Green, covering various key themes in the market.
The panelists address the uncertainty surrounding market direction, with predictions varying among experts. A correction is expected in the next 3-6 months, and while a crash is possible, monetary authorities may intervene to counteract it.
Factors such as the Federal Reserve's tightening measures and rising interest rates are anticipated to impact market performance. Government responses to market downturns also play a role in stabilizing and stimulating the economy. The historical trend suggests that assets tend to trend upward in the long term.
Market sentiment is currently high, but positioning is no longer extremely bullish. Earnings are expected to decline in Q3, influenced by slowing demand and decreasing inflation. Large companies like Samsung, Ford, and GM may experience significant earnings declines. The limited ability to raise prices puts pressure on corporations' bottom line, and lower volatility enables consumers to engage in comparison shopping.
The panelists discuss the complexities of inflation calculations and emphasize the influence of perception on market dynamics. Understanding the gap between the Fed's reaction and the market's perception is crucial for informed trading.
China's challenges with inflation, manufacturing, debt loads, and demographics are highlighted. The struggles faced by the Chinese yuan (CNY) and the need for devaluation to enhance competitiveness are explored. The panelists also touched on China's risk of collapsing due to demographics and limited consumption growth.
The discussion shifts to the interplay between the US and China, emphasizing the preference for economic fights over geopolitical or war fights. The strained relations between the two countries and the potential for unintended consequences are examined. The US dollar's role as a tool in geopolitical events and its impact on asset prices and credit quality are discussed.
Chapter 11 bankruptcies in the US have surged despite tightening credit conditions, indicating market fragility. The broken relationship between bankruptcies and credit spreads is analyzed. Mechanisms such as preventing market clearing events and refinancing avoidance are examined. The potential for a severe correction, investment opportunities in defense companies, and the struggle of levered companies are also discussed.
Overall, the panelists provide valuable insights into the evolving market dynamics and potential risks moving forward.
Key themes:
1. Epic crash or correction
2. Chinadestruct.exe
3. Credit divergence
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This is the 72nd episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.
Follow The Week Ahead panel on Twitter:
Tony: https://twitter.com/TonyNashNerd
Brent: https://twitter.com/santiagoaufund
Albert: https://twitter.com/amlivemon
Mike: https://twitter.com/profplum99
Watch this episode on Youtube: https://youtu.be/50gs8Ot80uA