Summer's Last Gasp
Happy Friday,
While in NYC is doesn’t feel like we are about to start fall with temps in the upper 80’s the markets are starting to position for the Fall Rally we have been calling for (See our most recent As The Tri Polar World Turns).
China trade delegation is in DC - momentum building to a possible interim or skinny deal (hey, who doesn't want to be skinny); possible deal date: a mid November APEC Summit meeting between the two Presidents in Chile.
For a President who wants to be known as a deal guy President Trump just had one possible deal/photo opp - with Iran - blow up last weekend. Blame game, retaliation all TBD but with the world’s 3rd largest annual defense budget, over $80B, Saudi ought to get a refund.
ECB last week, Fed & others this week, Mexico next - hard to fight global, full throated CB easing… liquidity tap is open & with Lower for Longer Global Growth, that liquidity is likely to go into financial assets. Note Econ Surprise Indices (ESI) are turning up sharply throughout the major economies.
While the liquidity tap has been turned on the fiscal pump is also starting to be dusted off over in Europe (& Asia too looks at India with huge biz tax cut last night). Draghi made it clear it is most necessary and the French, Dutch and who knows perhaps even the Germans have heard him. Will it be enough, soon enough - TBD but China’s targeted stimulus has had the beneficial effect of exposing Europe as a free rider on global demand.
As we say at TPWIM, self finance, self produce & self consume are the 3 drivers to the Tri Polar World’s process of regional integration. Internal demand creation is key to Europe’s growth future.
Speaking of liquidity flows into financial assets...One Q is whether those flows will be into public or private assets? The botched We IPO - following Uber, Lyft etc suggest some bubble elements in PE land as the private funds get bigger & bigger & bigger. Funny how the mark to market crowd isn't buying into nonstop $ losing as an ongoing business strategy.
While private equity has replaced hedge fund as the two sweetest words on Wall St virtually every public equity return forecast on a 5-10 yr forward basis is mediocre at best. These forecasts of course help fuel the PE $ wave. I wonder if those forecasts take into account 10 yr UST yields under 2%, ever smaller # of public co and continued strong buyback programs? The scarcity value would seem to be in the public, not the private, markets.
Enjoy the warm weekend in the NE and welcome in Fall!
Jay and Jamie