Mostafa Abdat

The YTD performance of the German stock market remains impressive, no question about it. But it hasn‘t been as strong as one would think since May. The DAX index continues to move sideways, similar to the French CAC. The S&P 500, on the other hand, gained 13% in EUR terms over the same period (so including the USD effect). And the numbers from Spain and Italy look very strong since May. Please take a look at the shot below for all the details (performance of the respective price indices in EUR). Bergos AG Bankhaus C. L. Seeliger KG #investing #markets #stockmarket Source: Holger Zschäpitz/Die Welt (via X / link in the comments section), Bloomberg

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Valuation extremes do matter Deutsche Bank's Jim Reid nailed it again! The chart depicts S&P 500 Shiller cyclically-adjusted P/E ratio (CAPE) and 10-year subsequent nominal and real inflation-adjusted total returns from valuation extremes, both peaks and bottoms. Investment implications for investors are unequivocally clear: Valuation extremes do matter for the mid- to long-term investment horizon! As you can see, all four valuation bottoms were followed by triple-digit 10-year subsequent returns, both nominal and real, while the last three major valuation peaks were followed by negative 10-year subsequent real inflation-adjusted returns. S&P 500 CAPE stands currently at 38x which corresponds with the 98th percentile across the whole time-series since 1881, indeed a valuation extreme again. Let’s see how the current market cycle will play out in the upcoming years.

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There’s technical analysis and there’s fundamental analysis. But guess the most important kind? 𝗠𝗶𝗻𝗱𝘀𝗲𝘁 𝗮𝗻𝗮𝗹𝘆𝘀𝗶𝘀. This is one big lesson I learnt — with a lot of pain — during the recent market volatility. During the March–April volatility, we went fully risk-off. Our models flagged elevated risk, and we pulled the trigger — exited positions, raised cash, and watched from the sidelines. We thought we were being prudent. But in hindsight, we were being reactive. We ended up selling some incredible businesses — stocks our models had strong conviction in. The markets bounced back swiftly, and we missed the recovery. Those two months of underperformance weren’t about bad models. They were about a momentary lapse in conviction. “𝘛𝘩𝘦 𝘣𝘦𝘴𝘵 𝘵𝘳𝘢𝘥𝘦𝘳𝘴 𝘢𝘳𝘦𝘯'𝘵 𝘵𝘳𝘺𝘪𝘯𝘨 𝘵𝘰 𝘣𝘦 𝘳𝘪𝘨𝘩𝘵. 𝘛𝘩𝘦𝘺'𝘳𝘦 𝘵𝘳𝘺𝘪𝘯𝘨 𝘵𝘰 𝘦𝘹𝘦𝘤𝘶𝘵𝘦 𝘤𝘰𝘯𝘴𝘪𝘴𝘵𝘦𝘯𝘵𝘭𝘺.” 🧠 𝗠𝗶𝗻𝗱𝘀𝗲𝘁-𝗯𝗮𝘀𝗲𝗱 𝘁𝗿𝗮𝗱𝗶𝗻𝗴 𝗶𝘀 𝗮𝗯𝗼𝘂𝘁: • Trusting the process when the P&L looks red. Our signals are built on statistical evidence — not emotion — and staying consistent is the real alpha. • Holding winners when your gut says, “Take profits.” Even the best quant models can’t predict every rebound — but they can guide you to stay with strength. • Understanding that risk management doesn’t mean abandoning quality. The process must include a conviction overlay that respects great businesses, not just downside metrics. 🔁 𝗪𝗵𝗮𝘁 𝘄𝗲 𝗰𝗵𝗮𝗻𝗴𝗲𝗱: We’ve now introduced filters that reinforce conviction — ensuring we don’t let volatility shake us out of high-quality holdings. Our new rules aren’t just statistical — they’re psychological safeguards. Sticking to our guns we were able to outperform the market by a margin in the last 3 months on our factor fund. ✅ 𝗧𝗵𝗲 𝗿𝗲𝗮𝗹 𝗲𝗱𝗴𝗲 𝗶𝘀𝗻’𝘁 𝗷𝘂𝘀𝘁 𝗶𝗻 𝘁𝗵𝗲 𝗺𝗼𝗱𝗲𝗹. It’s in sticking with it when it’s hardest to. 🤔 𝗬𝗼𝘂𝗿 𝘁𝘂𝗿𝗻: Have you ever made a decision based on fear that cost you more than holding would have? How do you manage conviction vs caution in your process? #tradingpsychology #quantinvesting #investingmindset #riskmanagement #learningfrommistakes

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The evolution of the world’s reserve currencies since 1900 (chart courtesy the IMF): => “Nothing lasts forever” - see GBP’s example before and after WW2 or => “This time it’s different” - tech innovations (such as stablecoins) will ensure that USD continues to dominate the scene for much longer

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💬 “𝐈 𝐚𝐦 𝐧𝐞𝐢𝐭𝐡𝐞𝐫 𝐚 𝐡𝐚𝐰𝐤 𝐧𝐨𝐫 𝐚 𝐝𝐨𝐯𝐞, 𝐈 𝐚𝐦 𝐚𝐧 𝐨𝐰𝐥.”– Christine Lagarde 🦉 The ECB kept rates on hold today — as expected. But beneath the surface, the message was clear: 𝙩𝙝𝙚 𝙚𝙖𝙨𝙞𝙣𝙜 𝙘𝙮𝙘𝙡𝙚 𝙞𝙨 𝙡𝙞𝙠𝙚𝙡𝙮 𝙤𝙫𝙚𝙧. 📉 Markets, which had been pricing some probability of a further rate cut later in the year, have now almost fully priced that out. 𝙏𝙝𝙚 𝙡𝙖𝙨𝙩 𝙙𝙤𝙫𝙞𝙨𝙝 𝙝𝙤𝙥𝙚𝙨 𝙝𝙖𝙫𝙚 𝙗𝙚𝙚𝙣 𝙨𝙦𝙪𝙚𝙚𝙯𝙚𝙙 𝙤𝙪𝙩 𝙤𝙛 𝙩𝙝𝙚 𝙘𝙪𝙧𝙫𝙚. The updated projections — particularly the medium-term inflation undershoot — may look dovish at first glance, but the ECB made clear they won’t react to minor deviations from target. ➡️ A 𝙦𝙪𝙞𝙚𝙩 𝙗𝙪𝙩 𝙛𝙞𝙧𝙢 𝙝𝙖𝙬𝙠𝙞𝙨𝙝 𝙥𝙞𝙫𝙤𝙩, despite Lagarde trying to tone it down by repeating her famous remark about her favorite bird — the owl. A symbol of wisdom and balance, the owl is Lagarde’s way of distancing herself from the 𝙚𝙭𝙘𝙚𝙨𝙨𝙚𝙨 𝙤𝙛 𝙗𝙤𝙩𝙝 𝙝𝙖𝙬𝙠𝙨 𝙖𝙣𝙙 𝙙𝙤𝙫𝙚𝙨. But make no mistake: the underlying policy signal today was anything but neutral. 🔍 𝐓𝐡𝐫𝐞𝐞 𝐇𝐢𝐠𝐡𝐥𝐢𝐠𝐡𝐭𝐬 + 𝐎𝐧𝐞 𝐓𝐫𝐞𝐧𝐜𝐡𝐞𝐝 𝐂𝐥𝐚𝐫𝐢𝐟𝐢𝐜𝐚𝐭𝐢𝐨𝐧: 𝟏. 𝐈𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐩𝐚𝐭𝐡: 𝐔𝐧𝐝𝐞𝐫 𝐭𝐚𝐫𝐠𝐞𝐭, 𝐛𝐮𝐭 𝐧𝐨𝐭 𝐞𝐧𝐨𝐮𝐠𝐡 𝐭𝐨 𝐞𝐚𝐬𝐞 After a 2025 overshoot (2.1%), CPI is seen undershooting in 2026 (1.7%) and 2027 (1.9%). Lagarde made it crystal clear: “Minimal deviations (1.9% inflation) will not have an impact on our policy.” 👉 A 𝙝𝙖𝙬𝙠𝙞𝙨𝙝 𝙨𝙩𝙖𝙣𝙘𝙚 — minor undershoots won't justify further cuts. 𝟐. 𝐆𝐫𝐨𝐰𝐭𝐡 𝐫𝐞𝐯𝐢𝐬𝐞𝐝 𝐮𝐩: 𝐅𝐢𝐬𝐜𝐚𝐥 𝐭𝐚𝐢𝐥𝐰𝐢𝐧𝐝𝐬 + 𝐫𝐞𝐝𝐮𝐜𝐞𝐝 𝐞𝐱𝐭𝐞𝐫𝐧𝐚𝐥 𝐫𝐢𝐬𝐤 2025 growth was revised up to 1.2% (from 0.9%), with 1% and 1.3% expected in the two years after. This bullish shift rests on two pillars: – Risks to growth are now “more balanced” — with less trade uncertainty – A nod to rising 𝙢𝙞𝙡𝙞𝙩𝙖𝙧𝙮 𝙖𝙣𝙙 𝙞𝙣𝙛𝙧𝙖𝙨𝙩𝙧𝙪𝙘𝙩𝙪𝙧𝙚 𝙨𝙥𝙚𝙣𝙙𝙞𝙣𝙜, likely a reference to Germany’s fiscal stance 🛠️ 𝟑. 𝐓𝐨𝐧𝐞: 𝐅𝐢𝐫𝐦, 𝐜𝐚𝐮𝐭𝐢𝐨𝐮𝐬, 𝐚𝐧𝐝 𝐝𝐚𝐭𝐚-𝐝𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐭 No promises, no panic. The ECB’s path is steady — but not soft. Lagarde’s owl metaphor reinforces a posture of 𝙬𝙖𝙩𝙘𝙝𝙛𝙪𝙡 𝙣𝙚𝙪𝙩𝙧𝙖𝙡𝙞𝙩𝙮, not dovishness. 𝟒. 𝐅𝐫𝐚𝐧𝐜𝐞 𝐚𝐧𝐝 𝐒𝐨𝐯𝐞𝐫𝐞𝐢𝐠𝐧 𝐒𝐩𝐫𝐞𝐚𝐝𝐬: 𝐀 𝐫𝐞𝐯𝐞𝐚𝐥𝐢𝐧𝐠 𝐞𝐱𝐜𝐡𝐚𝐧𝐠𝐞 Lagarde declined to discuss France directly but made two pointed remarks: “I'm confident that the policymakers... will take it to heart in that period of uncertainty to reduce uncertainty as much as possible.” And in response to a question from Canepa (Reuters) about the TPI: She conceded this was the key point ("calling a spade a spade”) and stressed that “Euro area sovereign bond markets are orderly.” 👉 Translation: 𝙏𝙝𝙚 𝙗𝙖𝙧 𝙛𝙤𝙧 𝙏𝙋𝙄 𝙖𝙘𝙩𝙞𝙫𝙖𝙩𝙞𝙤𝙣 𝙞𝙨 𝙝𝙞𝙜𝙝, and current spreads are nowhere near it. #TILTS #Banor #AChartADay 🚀📈🦉💬

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