Archive - Newsletter

The economic and financial world has turned completely upside down compared to 12 months ago. It will hardly be the same as before. However, we want to try to outline a more positive scenario than what we experienced in 2022.

The very sharp rise in prices in recent months has several explanations and, as BlueStar has been repeating for months, comes from afar. Specifically, from the trade war started by Trump in 2018 and the new populist trend of de-globalisation, itself a child of the unbridled globalisation of the previous 20 years.

The real motivations behind the conflict in Ukraine will greatly prolong its duration and have serious consequences, especially in Europe, which has decided to immolate itself on the Atlanticist altar.

The explosive high inflation/rate hike/war combination has been further aggravated by the new Chinese lockdown, which is unexpectedly proving even worse than the one in February 2020, exacerbating the logistical, hence inflationary, problems and global growth prospects. The markets could not help but react accordingly, recording one of the worst starts to the year ever. Not all hope is lost however, the balance is precarious, but the fall is not yet certain.

War in Ukraine: until realism prevails over rhetoric we fear it could get worse before it gets better. Main economic and financial implications and how to position portfolios.

There is a lot to be said about what has happened in the last few days, especially about the bad information we are being fed about the reasons, the chronicle and the developments of this crisis. The war started in 2014, not today. And those who could have stopped it did not, quite the contrary. There are certainly good guys and bad guys, but also good and bad information. Western films for years made us believe that the bad guys were the Indians. But a war is not a football match where you cheer for one team or the other, the only legitimate thought is towards the innocents who suffer in spite of themselves. To them go our thoughts and our most sincere solidarity. However, we would have liked to have seen such emotional and political participation in other wars as well, in Iraq, Afghanistan, Libya, Syria. Because there are no right or wrong wars, blitzkrieg wars or 'gentle' wars without civilian victims. War is brutal by its very nature. We do not discover this today thanks to RAI's live broadcasts.

Every now and then comes a rare opportunity to buy a deeply unloved asset at a bargain basement price. The beaten-down biotech sector provides such an opportunity now – as it is trading at its greatest-ever discount to the market.

“Only the wisest and stupidest of men never change.” — Confucius. Our scenario is always that of a strong economic cycle but seasoned with a new inflationary regime (unknown for at least 20 years). The good news is that the worst for the pandemic may be over (thanks Green Pass!), barring new aggressive variants. The bad news is that the cycle could "commit suicide" due to its own side effects (inflation, energy shocks, bottlenecks). In the most benevolent and likely scenario, the former, we do not expect contagion effect from China and remain moderately constructive on equities while anticipating periods of volatility and a correction potential above the now discounted 5%. BlueStar recommends favoring cyclical and value sectors in a context of controlled and well-balanced allocation.

A battle has been won against Covid, not the war.
Extreme measures are justified by the criticality of the moment.

The worst seems to have passed but the recovery we are seeing is not comparable to those of the past: this will be more "explosive" and lasting but with some side effects that the market persists in ignoring.

2021 is confirming itself, as we feared, to be very contradictory. We are clearly at a delicate turning point on three fronts: economic, financial and pandemic. The exit from the pandemic tunnel seems close and the global economy may be on the threshold of a historic economic boom. But it's not all gold that glitters: the huge injections of liquidity and public spending will not be exempt from side effects partly worse than the problems they would have wanted to solve...

The optimism, with which 2021 has started, continues to belie the skepticism that BlueStar has been nurturing for a few months. Intellectual honesty (which is different from consistency) remains a guiding star for us. If the facts change, we must have the courage to change opinion, but dressing up as bears or bulls depending on which way the wind is blowing does not belong to us.

Totally unexpected, at least as far as I am concerned, Mario Draghi was given the mandate to try to form a new government, which he has accepted with reserve. Never ever would I have thought that an Iconic person of IMMENSE international stature could accept to get muddy in the swamp of current Italian politics.

Last week the market celebrated the inauguration of Joseph Biden Jr. with another rise. The real good news, and we rejoice, is that the world has finally gotten rid of Donald, hopefully forever.

At the end of a year that has been terrible from an economic, financial, health and psychological point of
view, we may see the light at the end of the tunnel.

We warmly welcome Mr Trump's defeat, even though we are waiting to see if Mr Biden can really save theUS from the chasm to which they have been dangerously close for some years now. The real "bomb" news of the moment, however, are the comforting results on the effectiveness of two vaccines.

The economic recovery after the apocalyptic Q2 is certainly in place but it is no longer news, meaning that it has been widely discounted by investors (except the usual IMF “scientists” who arrived there, with their traditional timing, only now) and there are now doubts about the actual strength of the cycle for Q4 and 2021.

After a dramatic 2Q and an explosive 3Q, we could expect a 4Q of relative stasis before a new acceleration in 2021. Considering what the markets have already done, the lack of particularly positive surprises for 4Q could weigh negatively.

We have often heard of TINA (there is no alternative) and FOMO (fear of missing out) to explain, in a simplistic
way, the equity rally despite everything. We would now add another acronym, ROMO (reality of missing out):
few of us were expecting the seemingly counterintuitive rebound of the last four months and even fewer
investors participated in it.

The strong rebound of the last two months has been classified as the most "hated" in history. Objectively, we
did not expect such a rapid return of these conditions and therefore it should come as no surprise that
optimism on the markets has returned.

After the apocalyptic month of March, in which the stocks entered a bear market faster than ever seen in history, they turned around just as fast. Especially the American markets, with the S&P500 returning to -9%YTD and the NASDAQ 100 even reaching +6% YTD.

“Surreal” is the best word to describe the situation that we've been experiencing for almost two months.Deep anxiety and uncertainty about the future are accompanying us.

The global spread of Covid-19 has caused panic on the markets which in just a short time has set off a series of historical losses. The only beneficiaries of this situation have been quality government bonds and gold, which benefited by the exogenous shock.

Santa Claus did not put a lump of coal in our stockings last year, quite the reverse. Unlike 2018, the stock markets ended a very positive year on a high note and, unusually, this coincided with a strong bond market as well.

The progress of the market in an already very positive 2019 also continued in the month of November, confirming the tradition of the so-called "Christmas rally."

Against all our expectations, October turned out to be one of the best months for the equity segment in the apparently unpredictable - but in the end very positive - 2019.

When it seemed that the market had gained new strength and was about to breach the value highs for the year, some bad news from the macro data harmed the mood.