We are looking at a confluence of negative catalysts for global equities in the near term. This time around it does not exclude US equities. As I have covered for an extended period, we eventually anticipate an inflationary public policy response earlier and more aggressively than would have occurred in prior times to any material economic contractions. This is due […]
Here is a look at equities that are expected to be highly sensitive to global trade negotiation developments between China and the US per a recent Goldman Sachs report via CNBC. First, some names with high revenue exposure to Greater China (mainland, Taiwan, Hong Kong): Second, some names with the least amount of direct China exposure whose revenues are resoundingly […]
Oil, Sticker Shock, and Upward Pressure on Yields A perfect three-pronged storm is brewing: oil, the labor market, and fiscal policy in the US will soon propel inflation notably higher than appreciated by overly complacent economists and analysts stuck in a delusion of “low-flation” recency bias. Just this past Friday afternoon–Friday afternoons being the most notorious time to quietly dump […]
Synchronized global growth heading into early 2018 has become more complicated. Global divergences are forming in growth and inflation. US Treasuries are not coming off the hinges just yet but an increased risk of (too) sharp of a rise in interest rates is clearly in the back of investors’ minds. China and Europe are decelerating somewhat but from elevated levels. […]
Why Equity Market Gains Fueled in Part by a Weak Currency Just Aren’t the Same: Here is the S&P500 in Euro Terms
If foreign investors don’t expect the dollar pendulum to swing back anytime soon, they will demand much higher interest rates to compensate for the currency and inflation risk. Additional UST damage won’t do risk assets any favors and neither will trillion+ dollar deficits as far as the eye can see. Watch long end bonds.
We like to build a foundation of top-down macro themes over longer time frames and then optimize specific risk management strategies to fit the nature of the themes more actively.
Global Macro Backdrop: Absolutely remarkable and historically unprecedented Developed market equity indexes are scorching higher across the board. New all-time highs or multi-decade highs are being reached nearly every day in the US, Japan, Germany, and elsewhere. Bond yields are constrained across the duration and risk spectrum near multi-decade lows. European sovereign 2-year notes in periphery nations such as Italy, Portugal, and Spain are negative and continuing to hit new lows. Bond spreads between Germany and the periphery are generally narrowing to new lows, pricing in similar levels of risk between EU nation states. European high yield bonds are trading below 2%. Equity, bond, and currency market volatility are all at or near historic lows. This is the least volatile […]
US Economy Is Increasingly Dependent on Elevated Stock Shares and Real Estate As Personal Saving Rate Hits Decade Low: “Central Bank Put” to Remain in Place if Core PCE Stays below 2%
The “central bank put” safety net for asset prices will remain in place because it is too late to do otherwise. Therefore, selling risk assets short will remain the equivalent of pushing an inflated basketball under water. We reiterate our call to accumulate equity index longs on any dips and trim position sizes on rallies until core PCE convincingly rises above 2%.
A major Bloomberg article gaining traction essentially lays out the case for why nothing matters anymore in risk asset markets. Just keep calm and buy the dip–and by dip, that means any dip you can find. No dip? No problem. Just buy anyways. Anything is better than getting left behind sitting in the dugout on a pile of rotting cash while passive index investors trot around the bases effortlessly.