Happy Friday,

It's all Coronavirus all the time…bad for those affected (though usually not life-threatening) but great for bonds and arguably good for stocks that needed a pullback. One could almost call it healthy for markets.

It's also looking like a buying opportunity, especially in commodities which have been massively oversold. China’s financial markets open Monday (closed since Jan 23rd) including commodity markets… might be a nice entry point. As well as a chance to sell bonds and reload on the ex-US, Value and Cyclical trades which lagged recently as rally latecomers bought the old favs: US, Growth, and Tech - big OPers all this month.

While virus fears filled the air, global econ data flow has been broad based & best in over a year, which should support the rotation noted above. Raise, Hold em or Fold em… we are looking to raise.

We don't expect the virus’s economic impact to derail the growth recovery but the data might be a little choppy in the months ahead which coupled with US political risk (Feel the Bern) could lead to some consolidation.

Note that Q4 EPS are coming in better than expected in US & EU; the last of our Big Four Signposts: an EPS bottom, is indeed upon us.

In other, Tri Polar World related news, the USMCA was signed into law by Pres. Trump and Great Britain has left the EU as Brexit finally happens - with a yawn.

Inside ETFs Conf down in FL was anything but a yawn as ESG/Climate chatter filled the halls as did the intricacies of transparent, semi-transparent, active ETFs.

Maybe it was because 2019 was a winner for all invested but market views seemed consensus driven and less about how to use ETFs to build portfolios and OP & more about what might sell at a few bps above zero.

Direct Indexing is still a topic that the ETF industry is trying to wrap their heads after last year’s bomb claiming that DI was going to cause “great ETF unwrapping”. We believe this is a great space for ESG since it can be individualized as well as the tax optimization for clients.

Great seeing everyone down there and glad to see the industry continue to grow!

Have a great weekend & enjoy the big game!

TPW Investment Management Team

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Happy Friday,

US - China trade deal & market reaction once again confirm the Buy the Rumor, Sell the News nature of risk assets. Broad China equities up ~15% and S&P 500 up ~11% over past 3 months.

While US - EU trade is up next and US/Iran friction remains hot, risk assets continue to (correctly) focus on our Lower for Longer Global Growth Path = Higher for Longer Stock Prices mantra.

China data is supportive of an L shaped recovery while the rest of Asia shows signs of picking up.

Broad European equities are in full “Show Me” mode only up ~8% in the past 3 months, even while Bunds sell off meaningfully and it’s Econ Surprise Index has rocked. Europe’s Green Deal remains a focus as back door stimulus - see Germany.

The last of our Big Four Signposts, earnings (other 3 are: easing cycle, trade truce, global growth bottom), looks to be coming into focus as Q4 earnings should mark an earnings cycle bottom.

While geopolitical headlines remain front and center even America’s 3rd Impeachment in its near 250-year history has not been enough to cause a (healthy) market pullback.

Super Tuesday may change that; it is the likely roadblock up ahead (March 3rd to be exact) as the progressive candidates of the Democratic Party could do well, spooking complacent markets. How complacent? Just check out the publicly listed Private Equity companies over the past few months… no Liz Warren fear there.

Late to the party equity investors have hopped on the existing winners: US, Growth, Tech, creating some consternation in those advocating leadership changes...watch US transports - a breakout could support the leadership shift camp. Remember Dow Theory?

It's nice to see winter temps finally descend on Manhattan - just in time for the Davos crowd to add to the carbon load in order to talk about how bad climate change is…

TPWIM will be down in Florida for the Inside ETF Conference. Jay is speaking on the 2020 Alpha Panel on Tuesday afternoon and we would love to connect if you are down there. Let us know.

TGIF and stay warm!

TPW Investment Management Team

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Happy Friday,

Jay talks through our Year Ahead outlook: Reflation 2020. We remain on a Lower for Longer Global Growth Path which we believe can lead to Higher for Longer Global Stock Prices

Stay positive my friends!

Jay and Jamie

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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

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Happy Friday,

Violent political protest spans the globe yet financial markets remain calm; ACWI up 3% for October, HK up 4.5% though Chile was down 7%. Is it a case of parallel universes, the power of cheap money and lots of it? 

I struggle to understand how the political class does not see the huge opportunity to use cheap money to address social concerns of the young & the restless (Baby Boomers don't riot). Housing & jobs in HK, transport in Santiago etc. Post GFC the global political class has been MIA.

Speaking of Santiago the cancellation of the APEC Summit, far from stoking worries of no US - China trade deal, has boosted the likelihood of a deal as both sides reassure talks are on track. 

Q3 US GDP #s show why Pres. Trump needs a deal, as the US consumer is the only bright light in a trend 2% growth picture. The collapse in business investment can be tied directly to the trade tiff and syncs up with US CEO confidence at GFC lows.

Nov 1st suggests it’s time to start thinking about 2020 and while a recession whiff can bring the duration bulls out in force, it's worth thinking about Reflation 2020 and the potential for another leg up in global risk assets led by non US markets, Value and Cyclicals ...ACWI remains slightly below its Jan 2018 high… markets have been marking time for 2 yrs.

Working on a new theme: Lower for Longer Global Growth = Higher for Longer Global Stocks...let me know what you think.

Hope no one threw up over those Grubhub #s this week - another nail in the throw $ at it PE space? Loved this line: food delivery may always be a low margin business - seriously?

At least in public portfolios you know what you own - given the size of the cash raises in PE land everyone has a slice of these winners - hand grenades left and right…

Finally a post Halloween fun fact: when S&P is up 15% or more by 10/31 it is up 100% of the time the next two months, averaging 5% return ( h/tip HSBC).

Oh and congrats to the Nats - the best thing to come out of DC in a long, long, long time…best comeback team EVER… love their slogan: 

Let's go 1-0 today.

 Jay & Jamie

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Happy Friday,

Today’s Musings is brought to you by the #3:

1.    SPY back over 3k for 1st time since July while Asian and European equity up for the 3rd week in a row (outperforming US equity)

2.    Ahead of next week’s meeting, Fed funds futures contract pricing in 34 bps of cuts between now & YE;

3.    Q3 EPS coming in better than (low bar) expected in US and Europe with y/y +2% in US vs -4% consensus & EU EPS coming in -1% y/y vs -3% forecast - revenue growth up nicely in both

A 3 part China piece: 

1.    China ranked #31 in World Bank's 190 country study of business competitiveness - up from #46 a yr ago & counter to US narrative, reflecting a China that continues to open up and improve its offering.

2.    China's Yuan strengthens vs the USD for the 3rd week in a row - longest streak this year.

3.    China's 10 yr bond yield backs up to 3.25%, highest in several months.

To finish on a non #3 note: low vol(ume) in US equity trading & low vol(atility) in bonds, lowest of the year, suggest investors are looking for direction - TPWIM expects continued good risk asset performance into year end.

TGIF people!

 Jay & Jamie

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Happy Friday,

A good week for TPWIM’s Fall Risk Asset Rally thesis in terms of performance & underpinnings.

Feels like one of those times when good news = good news and bad news = good news (for risk assets) as it brings forward more policy response. So where is the bad news? ….Status quo.

There was forward progress on Brexit (more over the weekend) while US-China trade awaits the mid-Nov APEC Summit. Trump wants the photo op signing while Chinese fear a Trump walkout - both sides need a W so expect a signing in Chile. 

Our principal theme: A Lower for Longer Global Growth Path, was validated by the IMF this week when it noted it expects “no improvement” in the growth profiles over the coming 5 years of the Big Four: the US, China, EU, and India > low growth is a feature, not a bug.

US politics continues to bubble along with growing concerns over an Elizabeth Warren presidency. Too early IMO but will note two points. First, Dems would need a sweep to fully unleash what Wall St worries about. Secondly, and more importantly, most of the sectors in her line of fire are unloved and cheap relative to history. The 30% SPY declines being bandied about seem way out of line.

Pay attn to the USD & the FX market: after a sleepy period the USD is bumping up against important levels across both DM FX (109 level in $/Yen) and EM FX (broke below 200-day support vs MXN @ 19.26). With the back up in long-duration UST many late buyers (post mid-August) are now under water on unhedged positions while seasonality argues for higher rates, suggesting a possible accelerant here.

USD rollover would stimulate a shift into non-US equity where Japan is enjoying a stealth rally & the Euro Stoxx 50 looks to be breaking out of a long term downtrend vs US equity.

Fun EPS point: bottoms up 12 M forward SPY price targets suggest a 3300 SPY next October according to Factset.

Stay positive my friends!

Jay and Jamie

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Happy Friday,

Jay talks through our Friday Musings.

Stay positive my friends!

Jay and Jamie

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Happy Friday,

First, we want to say how saddened we are to hear of the passing of Envestnet’s CEO and Co-founder Jud Bergman and his wife Mary Miller-Bergman. There are not enough words to describe Jud and how important he has been in our industry.

To the markets, what a start to the month & the Q! It's worth noting that bad October starts (-1% on day one) tend to end well - both for the month (+3.7% avg) and thru YE (+7.2% avg).

Political news is front & center - I was asked to handicap the 2020 Pres race on BTV earlier this week - Said I had no insight there but that what I was watching (& think you should too) is how 2020 EPS estimates make it through Q3 results season. 

For all the recession angst, 2020 S&P 500 EPS estimates remain at +10% vs +11% at 6/30 - the analyst community has yet to buy into the recession call.

Also filed under the “don't look now” category is the US yield curve which has been steepening and 2/10 yr UST spread is the widest since early August… could the Fed be in process of achieving its curve steepening objective?

Speaking of politics it's worth noting that if impeachment goes forward it will be the first time a President's party controls the Senate; watch the Pres approval #s for the tell - if they fall more Republicans might be willing to break away.

PMIs were also in the news on both sides of the Atlantic with both Manuf and Services weaker than expected. We tweeted a neat JPM graphic (follow us @tpwim) showing how the current Manuf PMI regime (under 51 and declining) has the poorest return profile while the next stage (under 51 and rising) offers 4-5x the return profile… that return differential is worth playing for folks.

A few other data points worthy of note: ACWX outperforming S&P this week and since the beginning of August - also note US Value has outperformed US Growth over the past 1,3 & 6 months (mostly due to the sharp move last month). The shift from US to ROW and from Growth to Value are essentially the same moves. 

Given how stretched these relationships are regime shifts are likely to be significant and multi-year in nature -  just when a 10 year run of US outperformance has convinced clients that it's the only game in town.

We hope you enjoy the new video Musings - let us know what you think.

TGIF for sure - enjoy the Fall weekend!

Jay and Jamie

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Happy Friday,

Jay in our first ever Friday Musings walks through a volatile week.

Have a great weekend - you deserve it!

Jay and Jamie

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Happy Friday,

September looks like it will continue the up/down performance path with global equities up roughly 4-5% over the past month, bonds off 1-2% and Commodities up 5%.

Trump in Trouble? What else is new seems to be the financial market response to a formal impeachment inquiry. Good reminder that markets do not like surprises and this is no surprise.

The Q is what are the implications? Dysfunctional gridlock is a DC staple but might Trump Trouble lead to greater impetus for a skinny trade deal with China? Wins would seem even more important for Team Trump. 70th Anniversary of PRC founding next week - Principal level trade talks resume the week of the 7th.

Don't be alarmed if you start to read about US - EU trade tariffs all of a sudden. A WTO ruling will allow US to put tariffs on EU goods in retribution for EU state aid to Airbus. The EU is likely to retaliate.

Amidst some poor European data it’s worth noting the liquidity spigot is on with broad EU money growing at 6% y/y while private credit growth expands at 3% y/y…. Not that bad for the left for dead EU financials.

Speaking of left for dead how about any type of non US equity allocation? August outflows were among the largest in 3 yrs…

As one starts to think about 2020 and beyond it's tough to get clients to consider non US equity given the massive US equity outperformance since the GFC. Forward return forecasts however suggest better opportunities lie offshore… perhaps it's time to dust off the old past performance is not indicative of future returns?

Along the same lines the We implosion & Peloton’s pedal loss of an IPO coupled with signs of private capital pullback from China to Japan and beyond suggest some recent private vintages may not be the volatility smoothing performance winners current portfolios suggest they might be.

From the UK to Costa Rica and points in between… the TPWIM Friday Musings team wishes you a pleasant Fall weekend & a hearty & healthy Happy New Year to our friends celebrating Rosh Hashanah!

Jay and Jamie

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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

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Happy Friday,

Market rollercoaster continues with global equity up for 2nd week in row while duration bullies take a step back as bonds finally reverse, down 1st week in 5.

Lots to muse on this weekend: for starters could the ECB and Fed disappoint? Both seem internally split & while the case for more easing seems strong, it’s likely to be a question of degree.

US data flow: CESI above zero, strong August Services PMI, jobs reinforce Fed insurance cuts vs full blown easing cycle.

US Manuf PMI breaking lower exemplifies a "US catch down", given Global Manuf PMI been declining for well over a year = closer to end than start.

Merkel in China: does she conclude Germany needs to stimulate or that China will do it for her? Stimulus is all the talk in Berlin but it seems reactive rather than proactive. PBOC reserve rate cut looks to produce more of an L shaped recovery rather than V.

China - US trade talks back on with language ("meaningful progress") suggesting room for good news here. Starting to sniff a deal BEFORE YE to benefit both sides, something very few (esp the “smart $”) are positioned for!

Brexit Smexit - did you catch Salvini’s Italian own goal? 3 months ago he was taking over Europe...Mega bond rally expands fiscal space & takes Italian crash risk off the table.

Start the week off right Monday with TPWIM on BTV’s Open show at 9!

Jay and Jamie

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Happy Friday,

And Happy Labor Day weekend to those laboring in the vineyards of volatility!

While non US negative yields pull US rates ever lower, one wonders if rising recession fears via inverted Yield Curve are offset by the lower likelihood of an actual recession via reduced credit crunch risk?

China is playing a very steady hand in terms of trade conflict & stimulus. SL Jen's idea of an “L shaped” China recovery makes sense & suggests China will neither rescue nor sink the global economy.

This has huge implications for Europe & Germany which are being repriced as free riders on global demand & hence most at risk. Europe needs fiscal stimulus and needs it now.

How much of this is priced in? Germany trades at a record discount to Europe & at close to 20 yr record vs the US on a P/B basis.

Given how beared up folks are it would be just like Mr. Market to pop in September.

Talk about the end of globalization: G7 reveals complete lack of political will to use fiscal stimulus at a time of generational low rates to meet the challenge & opportunity of global climate change.

Our Tri Polar World (TPW) framework continues to resonate as each region is forced to self stimulate: Europe has the most room, followed by Asia & Americas least. In turn, our Lower for Longer Global Growth Path may be more elongated & shallow than we have thought.

Rest up, September is sure to be interesting!

Jay and Jamie

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Happy Friday,

NYC's heat wave broke with a bang last night as Mother Nature & the calendar remind us Fall lies ahead.

Jackson who and G 7 what? Who cares when China's in da house with a well timed reminder that it takes two to tango.

Perversely, this latest action may help concentrate minds for the upcoming Sept talks (unless Trump cancels) as the momentum seems clearly on Beijing's side.

It’s good to see the President take outside counsel on trade/econ; his team did not inspire confidence on last Sunday's talk shows. Mr. Market must have watched the same shows; selling off not on China tariff news but on Trump retaliation fears. Watch early August lows (2840ish on SPY, 1.50% on 10 yr UST).

My hope for the two big pow wows this weekend? Some embrace of Blackrock's well timed pitch for the melding of monetary & fiscal policy... this has to be the way forward.

Europe & Germany in particular need to embrace this approach; Germany’s political conversation is finally shifting as well it should: fiscal room clearly exists, growth is weak, rates are at generational lows & the banking sector is imploding.

China's refrain from aggressive stimulus makes German action all the more necessary & suggests more Fed action as well while reinforcing the Fed's growing focus on global factors, including the duration bullies.

Speaking of the Fall, check out this BTV clip from last night's Asian Open show - better days may lie ahead.

Enjoy the cool weather!

Jay and Jamie

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Happy Friday,

And rarely has a Friday been more welcome - what a week, from Wednesday's equity punch out to Yield Curve (YC) inversion and so much in between.

Is a NT bottom in for equities? Ned Davis Research notes that in 9 prior occurrences like Wed SPY was up 100% of the time 3 months later. Alternatively, press down could continue thru Labor Day for entry pre Fed, ECB, OPEC + Sept meetings. (SPY 3-4% above 200 day)

The FI schoolyard bully fight continues with rates back to 2016 lows as duration bullies ignore BTE retail sales and higher inflation; do yourself a favor and note what happened next in 2016 (hint, no recession).

Markets have driven through some real potholes: Argentine melt down (lack of contagion speaks volumes); cracking 7 in the RMB (what FX war); and most importantly YC inversion (ok what’s next - avg 19 months to recession and + 13% SPY perf before peak).

Remain on Lower For Longer Global Growth Path & focus on Big Four Signposts: Global Easing Cycle; Trade Front (market response suggests limited further action); Global Growth Bottom (mixed data flow); and EPS bottom (Q2 BTE in US + EU).

Finally, did you note CNBC's Markets In Turmoil banner this week? Great contra indicator: since 2010, SPY up next one week, one month & 3 months.

Have a great weekend - you deserve it!

Jay and Jamie

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Happy Friday,

What a way to start the worst 2 seasonal months of the year: Fed, Trump, Jobs. Plenty to muse over this weekend!

Will admit to feeling a bit buffeted here. Some thoughts: 

Neither Draghi (surprise) nor Powell (no surprise) communicated well which coupled with poor EU data and a decent Q2 US GDP print has led to a surge in US equity relative outperformance.

The expensive stuff just keeps getting more expensive: US equity, US Big Tech, US$, DM Sov duration….

Is Trump’s Powell Put matched by Xi’s Huawei Put? (Side note Huawei surprised to upside this week) If Trump’s concern is China trying to wait him out his back to back blow ups are unlikely to bring them to a deal which seems to remain beans for bits.

China’s leadership is on a 2 week Econ Policy hideaway - how will they respond - will the Sept meeting take place (maybe we should hope for no meets bc after every one there is a blowup)?

Don't see Trump moving again on China tariffs; the Full Monty (25% on full $500B) would likely cause major US equity selloff and recession. Trump could be done; bluster yes, further action, unlikely.

Jobs # came in as expected; however did anyone note Manuf hours worked fell to their lowest level since 2011? Farmers & blue collar workers (Trump base) both under pressure?

Market reaction to both Powell mid cycle insurance comments & Trump’s latest tariff threat (oil’s worst day in 4 yrs) show how deep rooted growth fears are. Yet, GS notes Asian trade cycle bottom seems overdue while several Firms have called the bottom in the semi cycle… darkest before the dawn?

Given the bearish market action and opinion flow let's end with some positives: Global Easing Cycle well under way with more (ECB, PBOC?, EM CBs) to come; Q2 EPS coming in better than expected in both the US and Europe; perhaps more importantly, JPM notes above average # of companies revising 2019 guidance higher; growth plays (miners etc) are already deeply oversold; liquidity is flowing and Financial Conditions are easing while GS indicators suggest risk appetite was low going into this week.

Have a great weekend - you deserve it!

Jay and Jamie

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Happy Friday,

Lots of action on our Big Four Risk Asset Areas: Easing Cycle, Growth Bottom, Trade Front and Earnings Outlook.

The Great Communicator, no, not Mueller, Draghi, disappointed yesterday: saying outlook worse & worse but no action and no agreement on action. J Powell must be fired up to get out there next week! We expect 25 bp cut.

On growth front EU data was poor but asset response was fine - suggests good Risk - Reward. Q2 US GDP @ 2.1%; US deceleration in train... sets up pivot point vs ROW?

US -China trade talks back on - does anyone care? Mkt reaction muted at best. Don't expect much here.

Earnings are the meat in the market sandwich; Q2 EPS BTE with 1/3 reporting positive top/bottom line growth y/y in US and EU... Good reminder that Manuf PMIs are not the end all and be all.

Great video (https://youtu.be/E_dCLagID7A) from this week's visit with Winston Capital Pres. Fabian Onetti; I cover our Lower For Longer Global Growth thesis and how we are allocating across Growth/Value and Def/Cyclicals.

Stay cool - Jamie is heading South and I am heading North - TPWIM covering the Eastern Seaboard this weekend!!

Jay and Jamie

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Happy Friday,

Today’s Musings come straight from Jay’s notes for his appearance this morning on Bloomberg TV: The Open show with Jon Ferro. Cutting edge discussion as always with Jon (see video clip here).

Amidst all the Fed speak we focus on John Williams’ comments on the decline in the Neutral Rate of Interest (NRI), long a part of our main theme: The Lower for Longer Global Growth Path.

Low growth is not no growth and low inflation is constructive for risk assets as it keeps Central Banks on the side of the investor.

The Fed is late to the global easing party - more than 30 Central Banks have already cut rates, led by EM. The global easing cycle is one of our 4 supports for 2H Risk Asset Upside; the others include: All Quiet on the Trade War Front; Global Growth Bottom & EPS Revision Bottom.

Any bounce in Global Manuf PMIs and market reversals will be violent with backups in duration and a surge in Cyclical/Value sectors of the global equity markets. JPM notes that Value outperforms in the 12 month following Manuf PMI bottoms. While according to the latest BofA investor survey only 1% expect higher inflation in the next 12 months vs 80% a yr ago.

We prefer Credit to Duration risk and have started to shift from Growth to Cyclical and Value within Equity. That means continued interest in Europe which could be primed for both some additional ECB action plus a more robust embrace of fiscal policy led by Germany (2nd weakest econ in Europe) and supported by new ECB head Lagarde. Europe’s economic policy set up over the coming years could be the best since pre GFC.

We also like Japan and within EM China and Brazil. Brazil could be setting up for the Holy Grail of economic recovery and multiple expansion as macroeconomic reform takes hold and the inflation premium collapses in domestic rates.

Sectorally, US Transports and Oil Services look interesting to us as do Financials (on both sides of the Atlantic) & Miners. 

Two events to watch: US debt ceiling & budget talks next week and month end Chinese Politburo 2H Economic outlook meet. Expect the latter to go more smoothly than the former.

Lots to chew on as we crank up the AC … stay frosty my friends!

Jay and Jamie

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Happy Friday,

Will Summer’s 1st heat wave lead to a risk asset melt up or melt down? Odds favor melt up. Jay was on Bloomberg Asia Daybreak discussing (Clip) and here's why:

Expect Pres. Trump to be bombastic on the campaign trail but conventional on the global stage (Mexico, Iran, G-20) as he focuses on that age old political goal: reelection.

Trade War in focus: Google Trends indicator at 100 > can’t go any higher. Expect a “can kick” at Osaka as a “Full Monty” tariff imposition will hammer US tech sector and raise odds of recession. “Can kick” = continued uncertainty.

Silver Lining is that uncertainty leads to weak cap ex >> increases growth dependence on the consumer & focus on wealth effect >> global easing cycle >> Fed insurance cut >> ACWI +10% next 6 months according to history.

The combination of a Osaka “can kick”, global easing cycle/Fed insurance cut, and a likely global growth bottom is very positive for risk assets. Add on top that the BofA manager survey is showing “Max bearish” implies melt up risk.

Our Lower for Longer Global Growth Path thesis suggests a focus on non US equity markets that offer the Big 3 return drivers: EPS growth, multiple expansion and FX appreciation. ACWX trades at 13x forward vs 17x for SPY.

Amidst the Osaka conversations we expect continued pressure on the tech sector. Splinternet is real & is bearish US tech/growth while tech typically underperforms in Fed easing cycles.

Note that Global Value stocks are starting to show some leadership. Longstanding US equity/ tech global equity leadership could be about to shift to non US/value markets.

Watch out in bond land: Wall St slash & burn on growth, rate levels for YE = perfect setup for Citi GESI bottom & reversal leading to long duration bond sell off.

The upcoming Fed rate cuts while the rest of the world growth is bottoming sets up for USD weakness. Dollar weakness & growth bottom is bullish for commodities; we like miners & oil service.

Yesterday’s joint TPWIM, HANetf & EMQQ Webinar covered all this ground - click here for replay. Given our Tech view EMQQ is interesting.

Note TPWIM goes live on the SMArtX platform Monday. SMArtX’s cutting edge tech together with TPWIM's low cost, risk aware Global Macro solutions…what a great combo!

Any Fencing Nation folks out there? Will be Columbus bound for Summer Nationals - look me up.

Finally, no Musings next Friday - Happy 4th - back on the 12th!

Stay hydrated my friends! 

Jay & Jamie

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