is the stock market going to fall? Moram
Investment decisions

Some thoughts on the current market situation…

Unleashed inflation due to the slow tightening of Central Banks is having a huge impact on the main street. It has raised prices and widened considerably the wealth gap in society. Now, when the effect of the massive QE is evident even for the central bankers, the FED is making a sprint to tapper and raise interest rates in 2022. This is making the markets tumble, mainly assets linked to future growth such as Tech stocks and also cryptocurrencies (closely correlated to the Nasdaq), but they are dragging the complete market (by increasing global risk, triggering margin calls which have to be covered,…). This is happening now just as has happened so many times in the past under similar circumstances.

If the fall of the Nasdaq has been steep, cryptocurrencies have just fallen from a cliff. More than ONE TRILLION DOLLARS have been evaporated in less than a week. This has critical importance as the collapse of Lehman Brothers, something that everyone remembers as the trigger of the Great Financial Crisis, erased $1.3 Trillion… We are not suggesting that this is going to happen, simply putting things in perspective. Investors do not need to anticipate the future, they need to evaluate the different scenarios and develop a plan to act consequently. 

We do not have a crystal ball and we do not know if we are just at the bottom or in the middle of the fall. What we know is that in this market environment, we want companies that are printing money. As we believe that they will be better protected through the storm. In this scenario, we see some industries which are going to be hugely benefited for at least some months ahead from a macro perspective. These industries are:

  • Maritime Transport (even more with the China reopening news from the second part of May)
  • Natural Gas (mainly with exposition to European TTF, but the huge amount of American export is starting to put pressure on the Henry Hub), 
  • Oil (structural problems due to the lack of investment and the fact that majors are buyback shares and raising dividends instead of increasing CAPEX because of ESG / shareholder pressure)
  • Oil Refinery (Similar story as oil, huge lack of investment, major exiting the business and the lowest inventory in more than 40 years in the US)

We have to bear in mind that if/when the recession arrives, we will need to revaluate these expositions as they are cyclical industries which will probably suffer in the downturn. However, it will depend on how big the recession is, as the structural problem in some of these sectors is not going to be solved soon even driving the demand down 2-3%..

Related to our managed portfolio, we continue having around 10% cash. We have sold Greenalia (takeover) and Power REIT and invested in Vertex Energy, Elecnor and The Italian Sea Group. We have >85% of the portfolio in companies covering the four points detailed, and Elecnor and TISG are two cash machines terribly undervalued that play the diversification role in the portfolio in substitution of Greenalia and Power REIT. We are also using derivatives to protect (puts) the portfolio and some calls to buy cheap tech stocks fell out of grace for 2024 at ridiculous strikes and small premiums (small risk -high reward to protect the portfolio if the Tech/Energy bet turns around.

So far, the quarter has not been good, and we are 5% down, which compared to S&P 500 seems not bad, but we feel again that the portfolio has a terrible potential and as soon as the market stabilises, it is going to shine again, as it did in the 1Q22.

We are working on publishing the analysis of The Italian Sea Group and Vertex Energy, and we hope to finish them in May. 

Thank you


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