Happy Friday,

Many have noted that the bond market is not confirming the sharp equity rally. What if it's about to? On Bloomberg earlier this week with Jon Ferro (Link) who noted we might be early on this non consensus call.

Oil has bottomed (noted 2 weeks ago), global economic activity too (today's UER in rear view), re openings occur without Covid-19 outbreaks, BofA notes 80% foresee U/W, headlines scream deflation.

Forthcoming UST supply will be huge & focused on the long end as the Treasury reintroduces a 20 yr bond. Next week’s $96B of long dated supply will give a signal.

Fed pins the short end & even if Fed Futures forecast of negative rates is wrong (thru Jan 22) & it will be wrong, further YC steepening seems likely. A 1% 10 yr doesn't seem like too much of a stretch, does it?

What are the Cross Asset implications? More support for equities, even up here at 2900, helps Financials which helps the Value Factor & Cyclical sectors catch a bid which in turn helps the equity market advance broaden out. Tech has been a huge winner from collapse in long rates as it supports ever higher valuations on future CF. That prop may pop. Recall our long standing focus on possible new leadership? Pay attn here - we remain with a Tech - Value Bar bell.

Commodities should do well - still down 40% ytd. The USD might weaken - already showing signs - A$ strong last month, A$/Yen cross threatening to break out (global growth indicator). $/Y down 5 weeks in a row - longest losing streak in a decade. Good for Gold/miners.

Our 2020 Outlook, written last December, was titled: Reflation 2020. It may still turn out right. China’s reopening is picking up steam: April car deliveries to dealers up Y/Y, Disney Shanghai reopening with tx sold out in minutes (and yet the US can't decide if it will have Fall football season - ugh).

Oil bottom, broad commodity price bottom, meat shortages (US wholesale beef prices +100% y/y), supply chain interruptions, US - China trade tiff, global money spigot turned full on… who's to say inflation won't return - certainly not me (TIPs).

What else? Brazil, my old stomping grounds (launched a Brazil Fund way, way, way back in the day) sees its FX blow out… Do you know what LatAM equity represents as % of ACWI? Blow your mind: less than 1%... yes less than 1%. Wait for MOF Guedes to make his move before stepping in.

Reopenings are key: No 2nd waves/outbreaks in China, Taiwan, Denmark, Austria, Germany. Schools reopening, manufacturers up & running. Watch next 2 weeks for any virus fallout from China Labor Day vacations (115M domestic tourist trips); Beijing now telling its residents to STOP wearing masks outdoors.

US re opening underway in the chaotic nature which has symbolized the Trump Admin response to the entire situation. Good news: CA reopening its manufacturing base, Michigan its auto plants. Bad news: still not close to national testing - tracing levels needed; over 50% of states reopening don't meet Federal guidelines to reopen.US re opening riskiest yet.

Have thought China could be a test bed for the US as we follow in the footsteps of those ahead of us in the re-opening queue but starting to think that's not right - China has stomped out Covid-19 almost completely with only a handful of new cases every day… US cases still well over 20k PER DAY.. China can reopen Shanghai Disney & have thousands of folks there. Doing the same in the US seems foolhardy.

The Tri Polar World implications of Covid-19 continue to manifest: from supply chain regionalization to travel- tourist bubbles ( China - SK, Aussie-NZ) and beyond. Our TPW framework remains robust as does our Global RIsk Nexus (GRN) work which helped identify speed in all its manifestations (with science to come) as key to understanding/investing in the Covid Age.

Stay Frosty My Friends.

TPW Investment Management

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Happy Friday,

Welcome to May - after a tortuous March decline & a rocket ship rally in April, investors enter May asking themselves that proverbial question: should they sell in May & go away?

With the S&P running into technical resistance around the 3K level (61.8% retracement, 200dma) it seems appealing & some profit taking makes sense.

But we ain’t playing checkers or even chess - we are playing speed chess with the algos where the moves come fast and furious.

Our focus is on the reopening process believing that the success or failure of such will dictate risk asset direction. The premise is simple: a failed re-opening means risk assets head south in a hurry. A successful re-openings imply higher risk asset prices as shorts cover, cash comes off the sidelines & markets broaden as Cyclicals/Value start to work.

According to BofA surveys, the betting today is on a U (52%) or W (22%) shaped recovery; only 15% expect a V. That tells one where the opportunity lies.

As I learned climbing in the High Himalayas back in the day, we want to follow in the footsteps of those in front of us, namely Asia and parts of Europe which have already reopened. In China, we note no 2nd waves of Covid-19, the production side is back almost 100% while consumer demand picks up fairly sharply. (We like China’s online voucher program - smart folks will copy it).

S Korea is reopening as are parts of Europe; Austria re-opened several weeks ago & no 2nd wave. Within a week or two much of Europe will be in some form of re-opening with companies copying policies used to re-open in China.

Various US states are also re-opening. The US re-opening seems most risky given the lack of testing capacity while case curves have not been bent to the extent most experts suggest.

From a risk asset pov, JPM has pointed out the speed of the advance has been fast relative to history though akin to past exogenous recessions. Re-opening needs to go well for risk assets to build on their recent performance.

Positives include the all in nature of the global policy response coupled with the multipolar science/tech community effort to develop biomedical responses to Covid-19. The latter could have a significant influence on consumer confidence. A bearish outlook entails fighting both the Fed & the global science community.

In addition there is tremendous liquidity coursing through the world economic system: in the US JPM notes a roughly $1T increase in money market funds & bank deposits over the past 2 months while BofA notes money market funds are closing in on $5T of assets. In Europe broad money growth is running at 7%+ y/y.

The liquidity boom includes the US savings rate which reached 13% in Q1, a 39 year high, as well as in the corporate space where April US IG issuance reached a record $250B. This suggests that as the economy opens companies & consumers will have cash to spend - the question is will they have the confidence to do so?

Amidst the market action we note the Value factor may be starting to bottom. A broader market advance will be a healthier market advance; the Cyclical/Value segments should perform as economies recover. We continue to favor a Tech/Value equity barbell.

Speaking of tech, did you note the comments from Microsoft's CEO: “two years of digital adoption in two months”. Hard to be bearish tech.

We noted the 3rd shoe dropping in last week’s Musings. Commodities remain the runt of the litter with The Economist noting that in real terms its broad commodity index is back at 1860 levels - yes, 1860! At the same time, the A$, a global growth proxy, rose 6% in April.

Two more quick points; first, the USD remains a Tall Poppy - note the collapse in shorting costs though - back to 2015 levels (we tweeted on this) and second note the Trump Admin ramping up its China attacks - for anyone thinking about broad EM equity exposure this could be a headwind given that China is likely to feature as a Trump campaign bogeyman.

As we look to learn from those ahead of us one Q really stands out, especially as a parent with school age children: how can some countries re open schools TODAY and the US can't commit to opening on campus/in person in 5 months? It just boggles the mind.

Enjoy May Day - you have labored long and hard these past few months!

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Happy Friday,

Credit imploded, stocks too and this week Oil and by extension Commodities joined the party. Guess what that means? No more shoes to drop!

Makes sense for Comm to drop fast & last (note the speed). No CB support for hard assets and Oil has been in a supply surge vs rest of Comm space cutting supply. It’s coming for Oil - watch US rig count #s today: already down 36% in a month; need another 30% to get to 2016 low.

On the + side, expect China to ramp up Fixed Asset Inv (FAI) as Pres. Xi highlights need for old (Transport, hydro, energy) and new (5G, AI, IoT) infrastructure investment. More in upcoming key Two Sessions meet, likely in late May with side benefit of signaling Covid-19 control. China stimulus estimates to date = roughly 2.5% of GDP vs 19% in the GFC aftermath > don't expect a repeat but stimulus is ramping in China.

Rolling Thunder (link) policy response continues with BOJ discussing open ended bond purchases, ECB joining Fed in buying sub IG debt for collateral, US topping up PPP plan while the EC signs off on immediate $580 B spend and discusses LT $1.5-2T plan tied to upcoming budget. Bit of a can kick but Europeans do love their football - new decision date May 6th.

We have argued that current econ data don't mean much for markets but US jobless claim rollover does reinforce the speed and up front nature of the Covid-19 sudden stop economic shock. This allows investors to look thru & discount it. A key point many struggle with.

Lot of focus on possible Italy downgrade to junk today - much less on how Sov debt issues are flying off the shelf, making YouTube food fight videos look tame. Ex A: this week’s Italian debt issue (yes same Italy) for 16 B Euros. Guess what the demand was: 100B, 6x oversubscribed… demand for yield is real people.

We remain constructive and focused forward. We like the Comm space - it's the only asset class that hasn't bounced big and its day is coming: LC energy with dividends, miners, gold.

We note S&P has been sideways for several weeks - trying to decide whether the next move is up or down. The re openings, in Europe & here in the US, will tell the tale. Next week 7 US states will end their stay at home policy even though the US lacks sufficient testing and tracing capacity. The big risk is that the US reopens, stocks rock to 3,000 and then we have a failed re opening with cases exploding and stocks sinking back toward 24-2500.

Much ink has been spilled on how Covid-19 has changed the world - never be the same etc etc. We aren’t sure but we are focused on whether it leads to new leadership in global equities… that is THE question & one worth musing over this weekend….

TGIF!

TPW Investment Management Team

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Happy Friday,

This week was the first in several where time seemed to slow back down and financial markets began to once again respect their speed limits.

Volatility is down, trading volumes have collapsed & price action has been muted across risk assets with Oil the obvious exception (time will tell if justified).

So here are four areas that would seem worth musing over.

1. Bad economic news seems to be pretty much in risk asset prices. For example, one has to respect the equity/debt price action given a doubling of US jobless claims to well over 6M. Same with PMIs, UER and other data points. It is worth noting that some regions/economies were doing pretty well pre crisis (EU Feb retail sales +3% y/y).

2. If Bad Economic News is the price, what about Good News? Good economic news remains elusive & will likely stay that way for the next month or two. Good news exists on the policy side as Rolling Thunder continues with Japanese stimulus expected next week and the US unveiling its $350B Paycheck Protection Program (PPP), moving closer to the EU labor model. Broad DM Govt backstop is in place.

3. Uncertain economic & earnings data suggests our main focus should be on the coronavirus & the longevity of aggressive social distancing. The good news is that the Italian case curve has clearly bent & NYC’s appears imminent; our NYC mantra: “empty is good, empty is good” is working. The bad news is renewed travel restrictions in Wuhan - a real worry given 2nd wave concerns.

4. Part two of our coronavirus focus should be on the coming out process - what will the economic rebound look like? Currently, China is our only guidepost & there it looks like the economy V-lined back to 80% production levels and then stabilized - for how long and why are things we will learn more about as time passes. Watch S Korea; its economic reopening is expected to begin next week.

From an investment POV, the market’s technicals would seem to be the best NT guidepost. The 20dmav for example seems to be capping many equity assets; suggesting the deleveraging puke was quickly made up by the rally. Breaking out: up or down will likely require some coronavirus clarity. Studies suggest longer term equity upside post a Q like we just had; in addition we continue to consider a leadership change.

One would think we are due some good news on the coronavirus…its Friday afternoon & Spring is coming - rest up!

TPW Investment Management Team

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Happy Friday,

So much happening, so fast, in so many different areas - how to stay on top of it all?

At TPWIM, we have created a live, internal Good News, Bad News document. Structure helps & so we tie it back to our Global Risk Nexus (GRN) work: Economics, Politics, Policy & Markets and add a Health section. Below are some thoughts - I hope they are of help. Please reach out with Qs/comments.

HEALTH:

• If references to war are any indication, then policymakers & populaces are finally taking the coronavirus seriously. China reporting no new domestic cases is the ray of sunshine. But as in Good News, Bad News, Italy's continued case expansion and the US waffle between testing and social distancing is the bad. CA lock down and positive market reaction suggests much is discounted.

ECONOMICS:

• Economists also appear to have gotten the war memo with recession calls proliferating and truly scary Q declines forecast (JPM). A week ago it was Q2 US GDP -2%, now its -14%.. UER fears were 5%, now 10% + and Mnuchin’s 20% scares everyone. China’s horrid Jan - Feb data dump set the stage for these shifts - lets hope its recovery does the same (China reportedly now 75% + back in operation). Again, much is discounted.

POLITICS:

• Big Govt is BACK. US election likely to turn on who best represents a safe pair of hands; China - US tussle for influence leaning in China’s direction as US plays catch up to virus; Europe has a huge opportunity to take big steps in safe asset creation, joint fiscal policy etc. Tri Polar World implications are significant > a story for another day.

POLICY:

• War references pour fast & furious from Pres, PM, MOF etc. Rolling Thunder indeed. Much easier to respond to public health emergencies than to bail out bankers. No global coordination but 40+ rate cuts & roughly $4T in CB balance sheet and fiscal support is a lot of firepower. How much is enough is & will remain unclear; the key is that Govts (ex China which is keeping its powder dry) will do whatever it takes, even in Germany.

MARKETS:

• Gyrations like we have witnessed across assets and geographies these past two weeks update the 1929 Crash story in ways that hit close to home. Personal story: my Grandfather was in the markets then: He got married, went on a transatlantic honeymoon cruise and returned home to find himself busted. Selling the family silver indeed.

• In 2020, we have lots of price discovery, massive, machine led, deleveraging by volatility traders, systematic managers & risk parity players leading markets from “record breaking” to “broken”. This market, structure, fund etc is “broken”, the US credit market and dare one say it, the UST market, the most liquid safe asset in the globe… dysfunctional if not broken.

• Good news is the Fed has the GFC playbook & is using it. Value players are talking up a generational opportunity. VAR players have delevered. Top down tough given EPS uncertainty; 10% off 2020 US EPS of $170 gets $150 or so which puts SPY at 2400 on 16x forward. ROW was and is cheap; Japan eq cash rich; EU banks at .4x BV.

UPSHOT:

• A lot has been priced in, policy makers are on war footing, positioning is much cleaner, family silver has been sold, starting to get our arms around the various impacts of coronavirus.

WATCH:

• Volatility (needs to stabilize/decline), hedges (need to act like hedges), correlation of one needs to come in (1 month implied SPY @ .98 mid-week). Next week: March PMIs, low 40s whisper #, Quarterly rebalancing (MS suggests $160B to buy eq). Peak (EU-US) cases remain key missing variable. Italy in focus - potential case peak in next week or so.

OPEN QUESTION:

• Will the bear market will lead to new leadership? As the health, economic, policy and market parameters stabilize then one can start to visualize the future. While today it's blurry as heck (WFH has not caused an early happy hour); a return to status quo ante seems unlikely.

Rest up, be well and hopefully find some quiet time to digest everything….

TPW Investment Management Team

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Happy Friday,

The good news? It's Friday. The bad news? It's only Friday morning.

Investors clearly not buying risk (except us) ahead of the weekend’s China PMI releases and who knows what else.

Given this week’s near unprecedented selloff one can be forgiven for thinking the world is ending, maybe bc machines are driving the train? Risk assets have given back Fall Risk Asset Rally gains & are O/S; safe havens, namely long duration UST, are very O/B.

Looking at economic data: various Fed Q1 US GDP Nowcasts (between 2-2.7%), European data flows (solid thru Feb), China reopening’s (Apple, Toyota, Starbucks), one could have a very different POV. The St. Louis Fed's Financial Stress Index is benign as is Chicago Fed’s Financial Conditions Index.

China/ Asia ex Japan best performing region, rest of world punished; sale of US Min Vol & Gold ETFs recently suggest we are in the panic phase of selling.

Headline risks from here: EU Schengen closing, US outbreaks, WHO pandemic announcement. A week ago G-20 whiffed on coronavirus with SPY close to ATHs - financial markets have once again alerted policy makers that they need to act.

Expect a meaningful policy response: growing expectation of a Fed cut, HK “helicopter money” drop, EM rate cuts, open discussion around fiscal stimulus in Germany & elsewhere. China is likely to tie its policy response to Q1 GDP release.

Risk asset direction likely determined by race between virus spread and attendant econ effects vs getting China back on stream/global policy response. Bloomberg Economics estimates China now operating at 60-70%. More cases are a given but with roughly 40 countries already affected & on high alert, big outbreaks should be contained. China could be 80-90% back by March end.

As BTV video shows we see more risk in long-dated UST at current prices than global equities and think investors should be building a buy list focused on Cyclical/Value segments. Much has been discounted. Global Econ entered the virus in broad recovery mode with Comp PMIs for Global, Advanced and EM economies all averaged over 52 in January. Q1 will be weak but expect sharp, stimulus supported pick up in 2H led by ex-US economies with more room to act.

Growing risk that ex-US recovery & growing US political risk (Super Tuesday next week while virus represents a real challenge- threat to a US Pres riding high post impeachment) could coalesce to stimulate outflows from still expensive US safe haven.

Get some rest - you deserve it!

TPW Investment Management Team

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Happy Friday,

Written or spoken word, we have it. TPWIM's POV available via an in depth ETF.com interview with Summit Roy as well as a 10 Questions in 10 Minutes MarketDesk podcast with Ben Phillips. Both feature CIO Jay Pelosky & cover a lot of ground, including current AA and top ETF holdings. Enjoy!

Lots to muse over as coronavirus concerns continue to bubble.

New virus cases in China continue to decline sharply while US Industrials report close to 100% of China plants up & running at roughly 50% capacity, expecting to ramp to 100% thru March. China stocks up roughly 4% on the week.

Growing pan Asian virus cases are rattling markets & leading to increased fiscal efforts (SK, Singapore) to offset the feared economic hit. Note Feb mtd SK exports +12% y/y, suggesting global growth pick up into virus fears.

Expect more fiscal talk at the G-20 meeting this weekend.

US rates continue to reflect safe haven bids, leading to negative real rates in the US; the last negative real rate stretch was in the 1970s… current nominal 10 yr UST levels have proven to be the bottom several times.

USD rally while rates fall and deficits expand is a little disconcerting - current DXY level marks top of recent range. Yen no longer a safe haven while growth concerns undermine Euro.

The move to Green is having unexpected effects, including turning Utilities into “Growth” stocks (ICLN anyone). That combined with the low rate revaluation boost to the Growth/tech segment (the biggest portions of ESG ETFs) have caused Growth to rally even more.

The results: YTD Growth - Value perf spread the biggest in decades. Tech valuation spread vs SPY widest since 2009 while BofA notes “full capitulation into deflation assets”.

By the way did you see the rising amount of Activism in Japan where the PE firms are circling as well as the Italian Bank M&A in Europe? Pay attn!

Speaking of Europe, JPM just noted that European Q4 EPS ex energy at +6% was better than US ex energy while February Composite PMI best in 6 months.

Net-net, we continue to expect the virus impact will be sharp & short lived; consequently, the growth rebound should be sharp as inventory rebuild could be epic, leading to many of current cross asset relationships to unwind, including an ESG whack through the Growth segment.

TGIF & and Have yourself a weekend!

TPW Investment Management Team

Journey

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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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