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#30 S2N: Always look at the “Real” News

#30 S2N: Always look at the “Real” News

micksonmatch
March 27, 2024

In today’s issue:

Look at the “Real” news
Cocoa Update
The Truth of the Deal

Today’s Spotlight

H/t to Luke Gromen. The Egyptian stock market is not part of my database, so I ended up having to dive through some hoops to put this together. Despite the war on its border, the Egyptian stock market has made new all-time highs this year.

I have plotted 2 charts; the top one in blue is the price of the top 30 stocks. The orange line is the cumulative return. This is what you get if you invested in the local Egyptian currency.

Now let us go a little deeper than the headline news. We have been hearing for sometime that emerging markets are the place to be. So wearing our global investor hat, let us say we decided to go and invest in the Egyptian markets in 2021. How did we do?

It turns out that if we adjust the returns for US dollars, then we have lost 10% since 2021. It is so important to look at the “real” returns, not the headline returns that don’t paint the full picture. Be very careful when financial advisors or sellers of investment products try to pull this headline angle on you.

I am not saying that Egyptians living in Egypt have not achieved the returns in the top plot. The problem is that today we are part of a global village. If your currency devalues, then you are poorer relative to the world than you were before, and most people need things from the world. This is not always bad for the economy, as a weaker currency makes exporting more attractive and can lead to more manufacturing jobs or foreign earnings.

If you were a global macro investor using your US dollars to invest in this market, you would have lost money. That is my point.

S2N Insights

Cocoa Update

I made a call for a top in cocoa yesterday. It seemed like every person in the financial media world was posting a picture of cocoa. Yesterday, the price surged over $10,000 a ton and then ended the day slightly down. This adds to my conviction of a near-term pullback.

Of course, now everyone is talking about supply shortages and trying to fit a narrative that explains why this is sustainable. Suddenly, everyone is an expert in cocoa. Yes, most are experts in eating chocolate but know nothing about the demand-supply dynamics of this market, me included.

I love it when everyone expects one thing and the opposite happens. Remember, the markets are trading future expectations. Players familiar with the space have known about the poor crops for years. I had no clue. Entering this parabolic bull market now is such a low-probability trade.

The Truth of the Deal

For those of you who missed it Trump’s social media company, Truth Social IPO’d yesterday, giving the company a mouth-watering valuation of $8 billion. He owns 60% of the company. Does anyone know of anyone who uses it? I don’t.