Rice is the answer.

In our post “Return always wants its risk payment” from two weeks ago we wrote, “DO NOT CHASE THIS EQUITY RALLY. Your time to be a hero was 2 months ago”. Now it’s important to note the most recent developments and how the fed controls the narrative.

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On Friday we received disappointing economic data just 2 hours before Jerome Powell trashed the market with his words (exactly what the fed wanted). The last thing the fed needs is the market to have even the slightest inclination of a dovish pivot. If that happens, then the market will rally, which in turn will pressure the fed to raise rates even more aggressively.

What to watch:

• Chinese Equities

• Interest rates

• USD

• Uranium

• Use excessive drawdowns (-3% or more) to allocate to US equities.

China is witnessing a scenario opposite of the US. Lower inflation, easing monetary and fiscal policies. They also were not affected by the inflation is food costs because they are mainly a rice consuming country, not wheat.

S&P rejected at our key level set in May: 4300

China’s risk/reward seems better than the S&P right now.

The USD is breaking out of multi-year ranges. This is bad for EM debt. Only a matter of time before a EM debt crisis. Article here.

Return always wants its risk payment. NOT INVESTMENT ADVICE.