Deliberately showcasing the contrarian stance, we think that the recession in the US would be just as bad, if not worse than in Europe, because:
1. The US has benefited from this insane, unreasonable fiscal and monetary stimulus. Now, we are facing massive payback on that demand pull-forward.  
2. The superstrong US Dollar makes European exports more competitive vs. the American services not just in the trans-Atlantic trade but globally. 
 – Just think where Americans would want to travel this summer: again to Mt. Rushmore or Italian Tuscany?
 – To that point, see how trading surpluses are ALREADY improving for many European countries
3. The US still has a structural and unsustainable budget and trade deficits that it has to address at some point
4. on the Commodities side – again it is mostly a wash: commodity pricing is so interconnected (with few hard-to ship categories like Natural Gas), so moves in Commodities globally would be very similar
5. The US has benefitted from this Technology boom (from Venture Capital down to hiring), and now that is colling down fast, really fast.
6. Europe (broadly speaking) was stricter and later with the post-Covid reopening, so it would get that reopening jolt now
7. And, last but not least: Europe is just so strikingly beautiful!

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1. cut the top-line growth forecast

2. will reduce staffing levels (layoffs)

3. talking about other costs and supply chain eating into their margins (lower profitability)

If this is not a front-row view of broadening consumer slow-down, then what is? 

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Yes, the company wasn’t prepared either for cost inflation that hurt their profitability.

Curiously enough, neither were the investors, after all – they expected Target to sail well through this inflation!

However, such drops are predictable and statistically inevitable.

Why?

Look at this eye-opening chart of Target profitability (their operating margins) – being at the PEAK already!!

So, when you are at the cyclical peak, there is only one way  – DOWN, when you are at the peak something bad always happens – inflation, sales slowdown, or a new competitor entering your lucrative franchise…

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1) sales of TVs (stay at home) are down big

2) luggage sales (travel items) are up 50%

Curiously enough, the CEO wasn’t prepared either for this transition or cost inflation which hurt their profitability.

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1) interest rates (yields) dropped – despite a higher than expected CPI report

2) USD (DXY) index was for most of the day

3) a few important Emerging Markets Equities started digging out of the rubble: Brazil, China, Mexico

The relentless sell-off in Technology and continued outperformance of Energy was a continuation of the trend that would define this cycle.

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Why?

1. The price of Natural gas is far, far less politicized – how many ppl quote natgas prices daily?
2. Adding to the confusion – the units of measurement in Europe and in the US are different (the US uses $/mmBTU while Europe uses Euro/MWH
3. Europe has almost fully greenlighted Natural Gas as a green fuel
4. US shipments of NatGas via LNG terminals would structurally grow year over year
5. Europe is very, very close to banning Russian Crude Oil but sanctioning Russian Natural Gas short term is next to impossible (no immediately alternatives)

Call on what do here…

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The key to watch now is now the USD – the greenback.
We need to see some weakness in it to pave the road for a market snapback.
USD is making multi-year highs but was flat-lining last 2 days.

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We still don’t see signs of decisive reversal, but we can tell you two things with certainty:
·       the market would not make a bottom on good news
·       it would be on sellers’ exhaustion.

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we could likely see a few high-profile closures by the year-end.
We track at least 60 (!) large Hedge Funds trailing S&P500 by 500 bps or more, that means YTD produced negative returns of -15-40%.
Ouch…
As we all know, given the high watermark rule that most Hedge Funds follow, it is a lot easier to close the fund down (and, possibly reopen it under a new name) than dig yourself out of the losses of that proportion.

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Because of the common ownership:

• Are some of these folks pure short-term gamblers? Yes, a bit..
• Are some of these folks clueless about the excessive valuations (i.e. exorbitant valuations)? Yes, a bit, but they think it doesn’t matter!
• Are these investors facing fear and calls for liquidations? Yes, a LOT!

We call it “weak hands”