Portfolio Update – September 2023

Just like that, the third quarter of the year is now behind us. Thus far, this year has proven to be an incredible yet bewildering ride for the markets. Most importantly, it’s been an enlightening lesson in market psychology:

  • The year kicked off with many participants, myself included, taking short positions in the market. There were plenty of compelling reasons for this, ranging from the monetary policy stance to gloomy economic forecasts.
  • Yet, the market exhibited remarkable strength, driven by improving economic data, the AI narrative, and a wave of short-covering. By March, a considerable number of funds that had commenced the year with short positions had switched to long ones.
  • Then came the so-called banking “crisis,” causing the market to correct, and sentiment took another U-turn towards pessimism. “Time to short, this is the big one!”, they said.
  • However, thanks to quick and coordinated interventions by central banks, the “crisis” was solved, optimism made a triumphant return, and the market embarked on a rebound. Those who hadn’t covered their shorts already, did so a month later, when major companies reported robust earnings.
  • Fast-forward to May, and one might expect seasonality to exert its influence, right? Wrong. Despite worsening sentiment and weakening prices, Nvidia’s surprising performance, propelling it to an all-time high, rekindled optimism.
  • And just when everyone had become convinced that the market was immune to correction, the S&P 500 saw a 5% dip. As you can imagine, not only is Twitter now awash with references to the 2007-2008 financial crisis, but sentiment has also taken a nosedive.

From this concise summary, a clear pattern emerges: this year, market movements have been characterized by abrupt shifts from one pain trade to the next. Logically speaking, one would expect that, given the currently prevailing pessimism, the market might begin an upward trend. However, paradoxically, the painful trade would be to persist with selling, even in the face of the prevailing bearish sentiment.

Honestly, I don’t believe a monthly newsletter is the ideal platform for offering short-term market predictions: you can follow me on Twitter for that. However, in light of the tumultuous year we’ve experienced, one thing appears certain: bears will capitulate on the way down. The recurrent, abrupt market upswings have conditioned traders to expect any downside not to last, which means they will prematurely cash in on profits when the anticipated downside finally materializes. Ironically, this behavior will likely bring them to chase downward, and inadvertently shorting at the bottom once again.

United States

In terms of recent data developments, there isn’t much to report. The three key factors to consider are the labor market, the growth rate, and inflation. And all of them are moving in the right direction.

Firstly, the labor market continues to demonstrate its strength, as both initial and continuing claims are on a downward trend.

Shifting our focus to inflation, all the reports indicate positive movement in this regard: CPI, Core CPI, PCE, and Core PCE, were all either inline or below expectations. However, it’s important to note that the recent surge in commodity prices and the rise in wages have yet to be fully reflected in the data, so it’s still too early to celebrate a complete victory over inflation at this point.

Lastly, in terms of economic growth, real GDP is expected to see a significant increase, as the Q3 estimate is currently 4.9%, but it would make sense to expect a decline for Q4.

Federal Reserve

The Federal Reserve had a meeting this month, they decided not to pause but, at the same time, they brought the longer-term interest rate expectations higher. Shortly after the meeting, I have written an article with my thoughts and comments on the decision, you can check it out here.

Until late September 30th, there was the risk of a U.S. government shutdown. In such a scenario, among the myriad of other issues that arise, both the public and the Federal Reserve will find themselves without access to crucial economic data for a period that could range from a week to a month: in other words, this situation effectively would have transformed the Fed’s “data-dependent” approach into a perilous journey akin to navigating in the dark. Luckily, the spending bill was passed and the U.S. avoided the government shutdown. However, the same problem will arise once again in just 45 days.


The cool thing about Europe is that PMI reports are way more reliable than in the US when it comes to form an overall economic opinion on the monetary union. For the ones not familiar with the report, values above 50 represent improvements since the previous reading, and the opposite is true for values below the threshold.

I’ll soon need to travel frequently to France, so I’ve decided to kick off the European section beginning with France in this edition. The French economy is currently facing significant challenges marked by a notable decline in business activity across both the service and manufacturing sectors in September, mostly due to lack of demand.

Surprisingly, the country was able to achieve its lowest unemployment rate since 2008, but this trend may soon be challenged: indeed, manufacturers have consistently reported job cuts over the past four months. While service companies have instead continued to expand their workforces, the substantial reduction in business activity within the services sector implies a looming possibility of reduced employment in the near term. Inflation remains a concern, particularly driven by the services sector, where input prices and output charges continue to rise. Notably, the French government introduced price caps on certain food products in July: while this policy does not seem to have had a substantial impact, the finance minister has announced additional food price reductions, which may result in further price drops in the upcoming months.

Moving to Germany, the PMI showed signs of stabilization, edging closer to the 50-point threshold. However, while this development is a welcomed surprise, it indicates that economic activity has essentially plateaued since August. The report suggests that the manufacturing sector’s decline is moderating, with the rate of new order declines slowing down. Additionally, the decrease in purchasing activity is losing momentum. It’s reasonable to expect Germany to contract this quarter as well, although there are encouraging signs in specific sub-indicators, such as new business and backlogs of work, which appear to be stabilizing, offering hope for a potential recovery ahead of the new year.

On an aggregate level, economic activity in the eurozone declined once again, but there was a noteworthy increase in hiring by companies in September compared to August. While this reflects a certain level of resilience and optimism among businesses in the face of lower demand, I still think it’s reasonable to expect a contraction for Q3. Moreover, the increase in hiring places additional pressure on already increasing input costs, heightening the risk of experiencing a wage-price spiral.

European Central Bank

The ECB too had a meeting this month, but they decided not only to hike, but to consider other tightening measures as well. I have written an article with my thoughts and comments on the decision, you can check it out here.


As I said in my previous portfolio update already, when it comes to Japan the most important thing you have to follow right now is the currency. As you can see from the chart below, which depicts a trade-weighted currency index, the yen continued to depreciate, something that is weighting on the consumers.

The government has yet to intervene in the currency market, according to sources, so the “micro interventions” I was talking about last month had to be other actors helping the country: if I had to guess, I’d say one or more of the Tiger Cub Economies.

Regardless, the situation is getting out of control and the official comments are increasingly concerned. On Friday the BoJ intervened in the JGB market, with an unscheduled bond purchase for ¥300B targeting 5Y and 10Y JGBs: quite a curious timing, as it was the last day of the quarter, and just prior to a new schedule (that, in any case, they can amend to however they want). At the same time, the Finance Minister Suzuki said there is no predefined level at which the MoF will intervene to save the currency. In other words, while the weak yen is a concern, higher yields are a much bigger one. It may be the case that the BoJ intervenes in the bond market but the MoF doesn’t intervene in the currency market, but honestly I don’t think that’s the case.

Since I put my money where my mouth is, I have a long yen position in my trading portfolio. I am perfectly aware of the fact I’m going against the market, and the economic theory behind currency valuation implies an even weaker yen: however, even assuming the probability of an intervention (before my SL hits) is just 15%, for the position’s risk/reward, the trade has a positive expected value. However, since negative carry is expensive, I gave myself a time stop too.


As of September 30th, 2023, my investment portfolio consists of MOWI, GS, QUBT, QS. My trading portfolio instead is tactically long EURUSD, and short GBPJPY and USDJPY.