Portfolio Update – November 2023

Earlier this month I decided to adopt a more focused approach for the remainder of the year, dedicating the last month and a half to enhance my knowledge and skills, rather than spending it trading. While I will continue to keep an eye on the markets, it’s very unlikely that I will take on any position during this period.

I am quite happy to say that I have a lot going on at the moment in terms of projects and opportunities, and if this is any preview of how 2024 will be, I’m sure next year will bring a multitude of good surprises. I’m unable to disclose details at this moment, but if everything goes as planned it is conceivable that, starting next year, this newsletter may transition to a quarterly release schedule instead of monthly. In any case, I’ll keep you posted.

In the midst of these contemplative shifts, this month bears a somber note as we bid farewell to one of Wall Street’s legends. Although my focus has always leaned towards shorter-term opportunities rather than value investing, I must acknowledge that Charlie Munger and his wise remarks played a significant role in drawing me closer to the markets: in a financial landscape saturated with pseudo-gurus, he stood as one of the few beacons remaining in the darkness. May he rest in peace.

Finally, before delving deep into this month’s issue, I want to underscore that while this newsletter is and always will be accessible for free, crafting its content demands a substantial investment of time. If you’ve found value in the words you’ve read, I’d invite you to consider making a contribution to support the ongoing efforts: link to contribute.

United States

In 2023, the widely anticipated significant recession in the United States failed to materialize, and those who had aligned their predictions with the consensus faced considerable ridicule throughout the year. Consequently, the same people are now asserting that a recession is no longer a looming risk. It’s understandable, as moving the prediction to 2024 would put them at the peril of further credibility loss if it failed to materialize once again.

However, I believe it would be an error to completely exclude the possibility of a recession in 2024. While I am not an economist and lack the necessary expertise to predict an economic slowdown, it is crucial to recognize that the reasons why the United States avoided a recession in 2023 may not be applicable in the coming year. Indeed, the demand destruction that has happened in the labour market has been concentrated in the sectors with the greatest labour shortages, which were ironically both the most rate sensitive sectors but also the most COVID-distorted sectors. In other words, monetary policy has been perfectly targeted. Or maybe the labour market would have rebalanced even if central banks had been less aggressive: we will never know. In any case, the key point is that understanding these dynamics is essential to grasping where the genuine recession risk lies and why it has not dissipated.

Then, the next step is to understand how the Fed will move if such a recession happened: they would cut, as the series of rate hikes over the past two years equipped the central bank with the flexibility to respond decisively. This, in turn, would facilitate a robust rebound in growth, and if done correctly it won’t be inflationary.

However, I think that in 2024 monetary policy choices in the US will be driven more by politics than the economic data, as the elections are looming and there’s nothing worse for the politicians than the unemployment rising. And the labour market is cracking: we saw it in October, and again in November, with the continuing claims trending higher. To quote the last Composite PMI: “Businesses cut employment for the first time in almost three-and-a-half years in response to concerns about the outlook. Job shedding has spread beyond the manufacturing sector, as services firm signaled a renewed drop in staff in November as cost savings were sought.”

All of these factors lead us back to the conclusion drawn in the previous Portfolio Update: the Fed has completed its tightening cycle. While I do not align with Ackman’s expectation of rate cuts as early as the end of Q1, as my anticipation places them in late Q2, the underlying assumption remains the same: we have already surpassed the point of the last interest rate hike.

United States OIS Curve, kindly shared by my friends on Twitter

This is the reason why I said (tweet) we shouldn’t place too much weight on the monthly inflation data anymore: unless they are surprisingly far from the consensus in either direction, the focus for monetary policy is on the labour market instead. Of course, as we saw in November, even the slightest miss on such numbers can lead to large movements in the market, especially if you trade rate-sensitive assets: that doesn’t make the number any less irrelevant for monetary policy, though.

Moving to FX, this year has proven to be a formidable challenge for the US dollar. Both the optimistic proponents anticipating a bullish surge akin to a “wreaking ball” and the skeptics forecasting “de-dollarization” have found themselves rather disappointed, as the USD index experienced a mere decline of 2.79% YTD.

Adhering to the belief that the dollar smile theory offers the most insightful approach to understanding FX price dynamics, it’s worth revisiting the theory. The trajectory begins with a phase of US exceptionalism leading to a robust dollar (observed in 2022). However, as this narrative becomes saturated and loses its exceptional quality, we transition to the bottom of the smile (observed in 2023). Subsequently, vulnerabilities emerge, prompting a return to the top of the smile. It is at this juncture that the Federal Reserve opts for interest rate cuts, ushering in a return to the bottom of the smile.

Employing this framework and considering other markets, it becomes apparent that we are not just situated in the trough of the dollar smile but that the market is also factoring in a flawless soft landing. Is this prognosis likely to materialize? As mentioned earlier, I remain skeptical. However, I’m also not anticipating a global crisis akin to the one experienced in 2008. If the market’s assessment proves accurate — meaning the Federal Reserve successfully navigates the hiking cycle, restores inflation to its target, and avoids a recession — then commendations are due to Powell.


My colleagues and I have devised an unconventional “indicator” for predicting European recessions based on some characteristics of the Ryanair staff: surprisingly, this indicator has so far proven reliable in anticipating economic cycles by 6 to 8 months. Based on my recent flights, I speculate that the most challenging period for the European economy might be the first quarter of 2024, followed by a subsequent recovery.

On a more serious note, my empirical observations suggest that Europeans seem to be less apprehensive about the economic outlook compared to around this time last year: it’s almost as if concerns about inflation, and growth, have disappeared. Which is crazy, considering that Draghi himself said he’s “almost sure” the Eurozone will be in recession by year-end.

Indeed, the service sector in the Eurozone marked the third consecutive month of declining business activity: the expectations for the coming months have improved slightly, but they remain below the long-term average. To make things more complicated, companies aren’t cutting jobs because of a shortage in the labor market, but at the same time have significantly slowed hiring. And the biggest economy in the Union, Germany, is clearly in recession.

The prevailing evidence strongly suggests that the ECB has, indeed, taken a stance of excessive tightening: moving forward, each month spent in denial only exacerbates a sequence of policy missteps, heightening the risk of unwarranted collateral damage. The apparent reluctance to acknowledge the need for a course correction compounds the potential fallout, underscoring the urgency for a recalibration in the ECB’s approach to prevent further detrimental consequences for the economic landscape. However, given the tardiness in recognizing the necessity for rate hikes, it’s only natural that a similar delay may be expected for them to start cutting.

Europe OIS Curve, kindly shared by my friends on Twitter

In the previous Portfolio Update, I mentioned initiating a short position on the EUR. However, the trade didn’t go as planned, and it was closed at profit in the matter of a few sessions when I recognized a change in the trend. For context, I entered the position when EURUSD was at 1.073 and closed it when it reached 1.067.

Subsequently, several events, including the US CPI release, led to another surge, bringing the pair back up to 1.10: finding this jump totally unjustified, I once again took a short position. Despite the initial drawdown, this decision has proven to be a wise choice. Overall, given the growth and interest rate differential between the United States and the Eurozone, I wouldn’t be surprised if the EURUSD saw parity once again next year.

United Kingdom

In November, discretionary household spending continued to be a weak link in the United Kingdom, attributed to low consumer confidence and the pressures of the cost of living. Just as an example, although RBC retail sales increased by 2.7% in November, a closer look reveals that most of the spending was on food rather than anything else.

The persistent nature of inflation raises concerns for businesses. Despite headline inflation moving in the right direction, the rates of input cost and output charge inflation both increased in November, and businesses reported the need to pass on higher staff costs to customers: this indicates that price pressures may not follow a unidirectional path downwards, and there could still be fluctuations ahead. In overall terms, prices charged by UK private sector firms increased at the fastest pace since July, driven by a robust and accelerated rise among service providers.

The main problem for monetary policy here is that despite inflation being a problem, the BoE would make a terrible mistake by increasing rates again. Indeed, not only the UK GDP is likely to remain broadly flat in the final quarter of 2023, but unfortunately forward-looking indicators are suggesting that recession risks are still likely to persist into 2024, with new orders declining for the fifth consecutive month amid reports of subdued sales opportunities. Even business activity expectations, while holding close to October’s recent low, remained notably soft compared to the first half of the year.


After a four-month period of keeping interest rates steady, the RBA surprised half of the market in November with a 25bps hike. The rationale behind this move was based on the latest CPI reading, which revealed that while inflation in goods prices had further eased, prices for many services were still increasing briskly. Indeed, although the central forecast predicted a continued decline in CPI, the progress seemed to be slower than initially expected. Therefore, they raised the rates to ensure greater confidence that inflation would return to the target within a reasonable timeframe.

Then, on the December’s meeting, the RBA opted instead to keep the cash rate steady at 4.35%, as expected by economists, and it continued to warn that persistent inflation could spark further tightening. We could label such a decision as an “hawkish pause” although, realistically speaking, no central bank in the developed markets can convincingly implement rate hikes anymore. The rationale behind this decision was that the limited information received on the domestic economy since the November meeting aligned broadly with expectations, providing no compelling reason for a further hike.

Indeed, the monthly CPI indicated a continuing moderation in inflation, though it provided limited insights into services inflation. Wages growth showed an uptick in the September quarter, but it isn’t anticipated to increase substantially further, and remains consistent with the inflation target, contingent on a pickup in productivity growth. Labor market conditions are gradually easing, albeit remaining tight.

What caught my attention this month is a statement from the former RBA governor, Philip Lowe, in an interview where he expressed concern that central banks might not have raised interest rates sufficiently to control inflation. He also noted that government assistance for the cost of living contributes to inflation—a rather obvious point. It seems the ability to speak more freely has influenced the candor of his statements. Furthermore, Lowe remarked, “I hope that most central banks have done enough, but I’m worried they haven’t. It’s doubly important that we pass this first inflation test. I see plenty of upside risks to inflation.”

The RBA’s upcoming policy meeting is set for early February. Given that they will have had the chance to examine the Q4 inflation data and review the economic forecasts, it promises to be a particularly interesting meeting.


I will wrap up the newsletter with a discussion about Japan, which has been my primary focus in recent months. To begin, earlier this month, Ueda mentioned not to anticipate a sharp increase in JGB yields beyond the 1% reference, even if there is upward pressure on yields. This essentially validates the concern I expressed in the previous Portfolio Update: “As the headline had already hinted, the BoJ adjusted the upper band of the yield-curve-control (YCC) policy: there is no longer a clear limit set at 1%. However, while it seems that the YCC band is quite clear in its intent, we cannot be entirely certain just yet: we must observe how the markets react, and whether the central bank takes any intervening actions.

Moving to the yen, you may recall that although shorting the currency proved successful for the majority of the year, I began advising readers to stay vigilant regarding its movement as we approached the intervention level in October 2022.

True to expectations, at approximately the same level of that intervention after reaching a high of 151.72, in just a few sessions the yen appreciated to below 147. It was not only a big move, but it happened very quickly as well. Regrettably, I did not capitalize on this movement.


When I shared the decision to take the last month off trading on Twitter, I had two active positions in my trading portfolio: a short position on EURUSD and another on EURJPY. Despite the initial drawdown, the trade worked out just fine in the end as both pairs have done nothing but falling since. Now, I’ll ride them until either the TP or the trailing stop get hit. As I said, I’m not going to initiate any new position this month.

The investment portfolio, instead, currently holds long positions in MOWI and QUBT. While there are a few companies on my radar for addition, as mentioned in the introduction the likelihood of me taking any new position over December is minimal.