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What I think I learned last week #24

This quote from Nicholas Colas of Data Trek sums up the week: “We’ve gone from a market used to playing checkers to being forced to compete in grandmaster three-dimensional chess.”

Asian stocks saw their worst week in years. Hong Kong’s 10% drop for the week was its worst since 2008. New Zealand had its biggest weekly decline since 2010 while Taiwan had its biggest decline since 2011 and Singapore and South Korea last had declines like this in 2012.

In their worst weekly performance since early 2016, the Dow, S&P 500 and Nasdaq all lost more than 5% last week. The Dow and S&P 500 dropped 10% from their January 26 highs, marking a full-fledged correction.

So do you have to wait for the bottom before buying? Not according to Goldman Sachs strategist David Kostin who pointed out that an investor who bought the S&P 500 10% below its peak without waiting for a bottom would have experienced positive 3-, 6-, and 12-month returns in 75% of corrections.

Here is some good news: The selloff and recent upward earnings revisions have improved valuations dramatically. Forward Price/Earnings ratios on the S&P 500 are now at the levels last seen since the early part of 2016.

Not quite the same story in Europe, though. According to Reuters, analysts’ predictions for fourth-quarter STOXX 600 earnings growth have been downgraded to 11% from 18% just a few weeks ago. Furthermore, the earnings « beats » in Europe are currently 48%, compared to 78% for the S&P500 index. Even in Europe, an average quarter will see the « beat » level typically at 50%.

Actual front page headline from the Financial Times: German union wins 28-hour week after workers flex muscles in French manner. The article goes on to state that this « shows how unions in Germany that for years have been models of wage restraint are flexing their muscles in ways more typical of organised labour in France, home of the 35-hour working week. » France, forever known as the home of the 35-hour working week.

Probably not good timing for Germans to start working less, since a study from the trade group Bitkom stated that over the next five years, robots and artificial intelligence will do away with 3.4 million jobs in Germany.

Speaking of German robots and jobs, Angela Merkel looks set to keep hers as the CDU, CSU and SPD concluded a grand coalition deal.

The US Congress agreed to a two year budget deal that would suspend the debt ceiling for a year and boost federal spending by $300 billion, including more money for the defense budget.

The French are looking to reverse a decade of defense budget cuts. French president Emmanuel Macron approved nearly €300bn in spending for the military by 2025. That’s about what the US spends every 7 months.

Where is the money coming from for the French defense budget increase? Maybe they are counting on their settlement with Amazon. French tax authorities, in the long-running dispute, were seeking nearly 200 million euros. Neither Amazon nor the French authorities would say what the settlement was worth, but rumors say the French settled for a couple of Prime Memberships and a Kindle. Oh là là!

China’s yuan sank the most since the aftermath of its shock 2015 devaluation, after data showed the country’s trade surplus more than halved last month. This should have made Donald Trump happy, but news that during his first year in office the beautiful US trade deficit grew 12% to its highest level since 2008 probably did not bring a smile to his face.

Hello? Hello? Anybody there? Sales of smartphones in China, the world’s biggest market, fell 4.9% last year, the first decline since 2009.

The US Energy Information Administration estimated that US oil production was running at just under 10.04 million barrels a day last November, fractionally below the previous record set in November 1970.But the new surge puts US output at more than double its low point of about 5 million barrels a day in 2008.

What goes up… Elon Musk, the founder of SpaceX and co-founder of Tesla Motors, launched a Falcon Heavy rocket into space. The spectacular display included two booster rockets returning in synchronized formation to land near the launch pad.

Must come down: A Credit Suisse product once valued at $2.2 billion self-destructed during the stock market selloff on Monday, dropping 96%, leaving institutional investors and hedge funds nursing heavy losses. They are redeeming the product, so no recovery for you!

Japanese bank Nomura also announced the closure of a similar product that rewarded investors for low volatility, writing to clients that “we apologise from the bottom of our hearts for causing great inconvenience for the holders.” An apology is a nice touch for investors who lost everything.

Finally, in the midst of all of the bad news, Twitter reported its first profit ever. #NotDeadYet

And that’s what I think I learned last week….