It's a Tri Polar World - We Just Live in It…

Happy Friday,

Wall St is rediscovering that old, good time religion: profit worship. Uber’s fall from grace (90% of all capital it raised is now underwater) will have that cleansing effect.

Timing is good at least, as the earnings cycle looks to be bottoming and acceleration thru 2020 seems in the cards (as tweeted @tpwim).

EPS Bottom is one of the Big Four Signposts we have used to navigate our Fall Risk Asset Rally positioning.

The other Three Signposts are also trending positive:

1.    Global Central Bank Easing continues unimpeded with JPM looking for more cuts in Q4 than in Q3.

2.    Global Growth Bottoming as Global Manuf PMIs inflect up in that sub 51 sweet spot (also tweeted)

3.    Trade Fears ebbing as mutual tariff rollbacks become a trending topic (note better than expected trade #s in both China and Germany).

JPM notes (ok, we like JPM’s research) that tariff rollbacks are NOT in current 2020 EPS estimates and could lead to 25% SPY EPS growth over the coming 24 months.

We focus on two additional points:

1.    For all the “equity markets are extended” talk, we note that ACWI is roughly flat since its Jan 2018 high (yesterday close was 0.5% from ATH) and (Europe down ~15%, Japan down ~7%)

2.    The last time Manuf PMis inflected upwards was in the 2016-18 period when ACWI rose ~50%. We aren't expecting the same mega move (lack of China stimulus, higher starting point etc) but there IS room for global equity to go meaningfully higher over the coming 12-18 months.

We see the Fall Risk Asset Rally morphing into Reflation 2020 and remain OW non US DM equity, Value and Cyclicals together with FI yield plays: US/EU HY, EM $ debt & Pref.

From a Tri Polar World framework POV, we are picking up increasing signs of regional integration: Asia’s Regional Comprehensive Economic Partnership (RCEP), Europe’s refocus on Capital Market Union (CMU) and Africa’s 54 country Continental Free Trade Agreement, to name just a few.

As we like to say: it's a Tri Polar World - we just live in it!

TGIF & stay toasty this weekend!

 Jay & Jamie