TPW Investment Management

Weekly Musings

Friday Musings


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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James Gardiner
Powell Trump Tango

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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James Gardiner
Mid Summer

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 ( 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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James Gardiner
Stay Cool!

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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James Gardiner
Summer Heat Wave: Melt Up or Melt Down?

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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James Gardiner
Summer Solstice

Happy Friday,

First, we hope you noted our big news this week - a very exciting partnership with SMArtX Advisory Solutions, a leading fin tech platform (Press Release)

So this is what happens when you get off the rollercoaster, your head reels & you have a bad case of whiplash…

Back in the markets how bout that Sell in May deal… ouch. Our call has been to Sell the US in May and Go Abroad - so far so good with ACWX outperforming the US over past one month.

There is so much to cover but here’s the high points: Central Banks are moving fast to shore up the global economy with the ECB noting that uncertainty itself is a manifestation of risk and it will act if necessary to counter it. Global easing cycle is underway.

Today’s European question is why aren't the banks rallying given the absolute shrinkage in sovereign bond prices, especially in the periphery? Italian 10 yr threatens 2% - a year ago it was pushing  4% amid talk of bank “doom loops” & imploding bank share prices - now we have the opposite but bank’s up move has been limited. Here’s one answer: MS notes 75% of their clients see EU banks as “uninvestable”.

Also in EU watch the top job fight - my preferred combo: Vestager at EC and Weidmann at ECB, looks good.

More broadly the BofA manager survey is always good for a headline - this one really caught my eye - “Most bearish equity since March 2009”… I mean, wow… that just makes no sense to me. Naturally the SPY makes a new all-time highs a few days later.

BTW, how many caught the IMF report noting that it expects a near record low number of countries to be in recession in 2019-2020… near record LOW. Our focus remains the Lower for Longer Global Growth Path & its investment implications (ex US eq, yield plays, non USD, Comm).

So Powell steepens the yield curve, Trump makes the call (to China) and reverses the call (bomb Iran) & economic data starts to be better than expected as folks fall all over themselves to chop, slice, cut and mangle their growth forecasts.

Watch Citi’s Global Economic Surprise Index, mired in a record losing streak - we are due for some green shoot news… just in time to whack the bond bulls who have pushed the AGG 14 day RSI to 80… Gold RSI also over 80.

Osaka can kick (agree to keep talking) and growth green shoots like today’s EU PMIs and we can have a risk on run, especially in non US. ACWX trading at 13x forward EPS, RSI of 60 & off close to 20% from 2018 high vs US trading at 17x forward, RSI of 70 and at ATHs.

Tech is key as we have been noting - Slack IPO makes me wonder about supply - demand but this makes me wonder more: Asia Pacific is home to 53% of Internet users with only 42% penetration; N Am is home to 9% of users with 89% penetration… who’s going to win Splinternet?

Check us out on BTV’s The Open show at 9 am Monday - TPWIM will be kicking off the week with Jon Ferro, talking Fed, oil & of course G-20…

Longest day of the day begets a long Musings!


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James Gardiner
Summer Cyclone

Happy Friday!

It is summer so a roller-coaster ride is not that unusual but boy from Q4’s downdraft to Q1’s rip to May’s stumble and June’s bounce it has been a pretty schizophrenic marketplace. If you are in NYC it is worth a trip to Coney Island to hop on the Cyclone, arms up!

The US continues to drive the train so it’s worth putting May’s S&P pullback in context. Over the past 90 years the S&P has averaged three 5% pullbacks per annum. Ok so what happens next - that's the key Q right? Over the past decade further downside has averaged 2.75%.... This one was slightly over 6% in total so “normal”. You don’t see that in your CNBC chyron.

Oil’s been riding that train too. According to Sentiment Trader (hat tip) oil has been down 2.5% during the day in 6 of the past 15 sessions which has only occurred 6x in the past 30 years (we really ARE living in interesting times). What happens next? 6 months later it was in positive territory 5 of the 6x with the 5 positives averaging + 35%.

Could it be that interest in non US DM is starting to percolate? Growth fears have cooled the ardor for EM equity and so Europe & Japan may finally get a look. European equity no longer declines on bad news days suggesting as Barton Biggs, my MS colleague from back in the day, used to say: the news doesn't have to get better, just less bad… guess what - Europe is there.

I have described the FX market as the dog that hasn't barked. The OECD recently updated its Purchasing Power Parity (PPP) Fair Value measures versus the USD. How expensive is the greenback? Check these two examples out: Euro FV vs the USD is $1.38 while Mexican peso FV vs the USD = MXN 9.35...not 19.35 but 9.35! US policy mix shift: from loose fiscal & tight money to tight fiscal and loose money is dollar bearish as is the Trump Admin’s desire to “weaponize”, i.e., cheapen, the USD.

Our recent Monthly titled The 3Ts: Trump, Trade & Tech - Making Value Great Again? has generated a fair bit of attention… I will leave you with this quote from a recent Trivium daily: “Every Chinese company of any size is looking for ways to reduce its reliance on American technology”... I struggle to see how that is bullish for the US or US tech.

While it is indeed summer TPWIM has a lot going on these next few weeks - check out the calendar below and join us...

TGIF baby!!

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James Gardiner
Happy End of May

Happy End of May,

Well the old adage: Sell in May and Go Away clearly topped the Equity & Commodity charts this year with ACWI, ACWX, SPY and Europe all down roughly 5.5% for the month in USD while  EM was down 8%. Broad Comm were down 3% with Copper down 9%, oil 8%, base metals off 6% and gold flat.

A different story over in UST world, especially long duration, with TLT up 5%, AGG up 1% while HY fell over 1% and EM $ debt rose slightly during the month.

A look over 3 months adds perspective: ACWI is down less than 1%, ACWX down 2% and the US up slightly. Long duration UST up 8%, AGG up 3% and HY up 1%. Over the same period broad Comm rose less than 1%, oil rose over  2% while Copper fell 10% & base metals 7%.

The past week’s  US - China trade rhetoric was nasty yet EM equity rose over 1%, ACWX was up slightly while US equity fell over 1%. UST have continued to rally with long duration up 2%, AGG up .5% and HY down .3%. Broad comm are off slightly led by oil down close to 3% while Copper is up close to 1% and base metals are flat.

What does all this tell us? UST are massively overbought with RSIs in the high 70s, HY’s muted decline doesn’t support the idea of a shapely weakening US economy & global growth plays: China equity, base metals, miners are deeply oversold with RSIs in the 20s.

As I write, US threats to impose tariffs on Mexico (on the same day Mexico introduced legislation to pass the USMCA - classy) has been met with Latin American equities up on the day after being up 3% for the week. 

The price action suggests that the leading global growth stories have already been sold and are bottoming. US equity, underperforming over the past week, is at risk to the trade fights  being picked with all corners of the globe; its leading sector, tech, is most exposed, thus leading to the downside with a 9% May decline ( still up 16% ytd, room to decline further). Seems like December all over again.

As talk of Fed cuts fill the air, with rate and growth differentials between the US and Europe narrowing perhaps the USD ( up less than 1% for the month) is suggesting that the US is not free from risk in the current environment.

Given an increasingly unstable environment having a point of view, a thematic approach to things can be of great use to investors. In this regard we offer a recent Real Vision interview with CIO Jay Pelosky where he discusses in great depth our main theme: The Lower for Longer Global Growth World & Its Investment Implications. We hope you find it of use.

TGIF indeed!

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James Gardiner
Happy Start to Memorial Day Weekend!

Happy Start to Memorial Day Weekend!

And what a week it was - lots of public events following last week’s Webinar with GlobalX.

This week we laid out our Lower for Longer Global Growth thesis & discussed its investment implications in a 30 min Real Vision interview (public link forthcoming, link below for subscribers); co-hosted a great conference call with our friends at Signum Global Advisors on the Political & Market Implications of the current EU Parliamentary Elections (link below) and finished up this morning on BTV's The Open show with Jon Ferro and strategists from both Morgan Stanley and JPM Asset Mgmt - great company for TPWIM!

Watch or listen for our current thinking & see what’s upcoming below.

Two other thoughts: First, in fast moving markets like the past few weeks technical levels are important. As I see it global growth stories: China, metals, miners are quite oversold; UST, particularly long duration, are overbought; Europe eq, US HY are sitting on important 200 day support levels; & the S&P and US tech are roughly 2-3% away from such support.

We remain of the view that the current pullback is a healthy one with ACWI off ~5% from recent highs & ACWX (ACWI ex-US) off ~10% or so. Holding the above noted levels might be the difference between a healthy and an unhealthy pullback.

The other thought revolves around technology and how quickly its globalizing thrust is being replaced by a Balkanized regional or in a few cases country focus. It's not just China and the US either, India is looking into offshore ecommerce companies, Europe is considering how to treat Huawei while supply chains shift from global to regional.

Tech is rapidly becoming a 4th driver to our Tri Polar World (TPW) framework, joining each region’s growing ability to Self-Finance, Self-Produce and Self-Consume; perhaps tech is now becoming an ability to Self-Innovate?

Speaking of TPW, McKinsey just came out with a study that really validates our thesis - check it out here… can’t say its beach reading but can say it’s well worth a look.

We got into it a bit on BTV with JPM’s strategist but I continue to hold the view that US tech is most exposed to a Trumpian Full Monty on China tariffs (25% on full $500B) as well as any further acts like the Huawei kneecapping. China tech (KWEB) is off ~18% since recent high vs ~9% for US Tech (IYW); KWEB is off close to ~40% from its 52 week high set early 2018 vs ~9% for IYW which recently set high. Big China tech is much more insulated than US tech.

Looks like it's going to be a beautiful beach weekend here on the East Coast - enjoy, but not too much - just like the markets the weather can change (forecasts for mid 90s next week in NYC ugh).


Jay and Jamie


Upcoming TPWIM events 


5/15                                    Joint webinar w GlobalX (Replay to come next week)

5/20                                     RealVision interview on TPWIM’s Lower for Longer Global Growth Theme (Recording for subscribers)

5/23 (10:30am EST)           Joint Conf Call with Signum Global on EU Parliamentary Elections - Political & Risk Asset Implications (Recording of Call)

5/24 (9:00am EST)             Jay was on Bloomberg TV: The Open (Short Clip)



6/3 & 6/4                             Inside ETF Smart Beta Conference

6/4 (11:40am EST)             Jay speaking on the panel “Active 2020: Strategies to Generate Alpha”

6/18 (10:30am EST)           Joint Conf Call with Signum Global on US Political Situation and Outlook

6/27 (10:30am EST)           Joint Conference Webinar with HAN ETF - Europe’s Only White Label ETF Provider

Trade & Tariffs in a Tri-Polar World: Investment Strategies

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James Gardiner
Trade Purgatory

Happy Friday!!

My head hurts: trade disaster last week, trade bounce this week, trade purgatory ahead?

Trade stuff is so opaque but three things stick out to me:

1.     Pres. Trump owns this issue as far as the market is concerned as his trade tweets are definitely market moving.

2.     The US economy is nowhere near as robust as the US side seems to think with Q2 Atlanta Fed Forecast at 1.1% - check out the 2 yr UST for confirmation.

3.     The leading equity market sector in the leading market: US tech, up 22% ytd, is most exposed to the Full Monty (25% on full $500B) with smartphones/laptops = to 69% of the Top 10 items not yet covered by tariffs.

These three points suggest to me that the US is highly unlikely to implement the Full Monty as subsequent stock market weakness and likely US economic weakness will be squarely laid at Pres. Trump’s West Wing door. Given that he wants to open that door in 2021 and beyond this does not seem like a winning electoral strategy.

Absent the Full Monty/complete breakdown of talks, a good bit of the downside seems to be priced in, particularly outside the US. Next steps are a US delegation trip to China and the G-20 meeting between the two presidents. If Osaka fails to bring a deal but talks continue then trade purgatory awaits. 2nd H positive offsets include: upward global earnings revisions, growth stabilization in China, growth bottoming in Europe and likely EM Central Bank rate cuts.

As a quick aside (speaking of tech), what about the Lyft/Uber IPOs - perhaps the “bubble” is in the private markets? The permanent capital folks have been putting more and more into private vehicles (no nasty mark to markets, lower vol, and higher Sharpe ratios). Interesting then that the world's largest Fund, Norway's investment vehicle, is going the other way, increasing public equity to close to 70% of AUM.

We continue to focus on investment opportunities that fall out of our Lower for Longer Global Growth Path thesis (as highlighted in recent webinar with GlobalX) including equity markets with room for multiple expansion: Europe & Japan and income segments with yield (EM USD debt, US HY, Pref Sec, MLPs etc). On the commodity side metals and miners have been hit hard with Dr. Copper off 6% and copper miners off 15% over the past month.

Speaking of Europe we are excited to note our upcoming joint conference call with the good folks at Signum Global Advisors, a leading transatlantic political advisory firm next Thursday, May 23rd at 10:30 EST, 3:30 UK time, (information below). Hope to hear you on the call!

We have a busy few weeks ahead - CHECK OUT our upcoming calls, webinars, and appearances below.

TGIF - How bout them Bruins & enjoy the seasonal weather (finally) here in NYC!

 Jay and Jamie


Upcoming TPWIM events 


5/15                                    Joint webinar w GlobalX (Replay to come next week)

5/20                                     RealVision interview on TPWIM’s Lower for Longer Global Growth Theme

5/23 (10:30am EST)           Joint Conf Call with Signum Global on EU Parliamentary Elections - Political & Risk Asset Implications (See Below)

5/24 (9:00am EST)             Jay will be on Bloomberg TV The Open 



6/3 & 6/4                             Inside ETF Smart Beta Conference

6/4 (11:40am EST)             Jay speaking on the panel “Active 2020: Strategies to Generate Alpha”

Late June (TBD)                 Joint Conference Webinar with HAN ETF - Europe’s Only White Label ETF Provider

Trade & Tariffs in a Tri-Polar World: Investment Strategies


The EU Parliamentary Elections: Political Risks & Investment Opportunities
Anna Rosenberg, Head of Europe and UK, Signum Global & Jay Pelosky, Co-Founder & CIO of TPW investment Management

Topics to be discussed:

  • Real versus perceived risks of populists in the next European Parliament

  • Populists’ ability to disrupt decision-making and European integration

  • Impact of European Parliament elections on the UK and Brexit

  • Europe’s Place in a Lower for Longer Global Growth World

  • Implications for European Cross Asset investing with Political Risk Ebbing and Growth Bottoming


Thursday, 23rd May
10.30am EST / 3.30pm UK

One Tap
US: +16468769923,,882929901# 
UK: 442036950088,,882929901#
US: +1 646 876 9923
UK: +44 203 695 0088
Meeting ID: 882 929 901
There will be an opportunity to ask questions. Should you want to listen to the replay, please contact

Anna Rosenberg is Partner, Head of Europe and UK and member of Signum’s Global Management Committee. Over the past ten years, Anna has advised executives of multinational companies in managing their global market portfolios. She helps senior executives better plan for and respond to forces outside of their control, such as political and economic risk, to ensure their businesses can navigate through difficult times and continue to perform. Before joining Signum, Anna worked as Director of Global Management Insights at Frontier Strategy Group and also headed the firms' Sub-Saharan Africa research practice. Previously, Anna worked as Head of Research for IC Publications, where she was in charge of putting together major investment conferences with a focus on emerging markets. Her work on business strategy has been featured in Harvard Business Review, the Wall Street Journal, the BBC and CNBC, among others. Anna is also a Visiting Scholar at the London Institute of Banking and Finance and a BBC Expert Woman. Anna holds an MA with Distinction from the SOAS, University of London. She speaks fluently German, Spanish, and Portuguese, reads French and Italian and basic Arabic.


Jay Pelosky, Co-Founder & CIO TPW Investment Management

Jay is the Chief Investment Officer and Co-Founder along with James Gardiner of TPW Investment Management, a New York City based investment solutions firm focused on offering a suite of competitively priced, ETF-based, Global risk-based portfolios. Jay is responsible for management of all TPWIM’s global asset allocation & portfolio strategy, leads the research activities of the investment team, and produces frequent written market and research commentaries. In addition he is a frequent speaker at industry conference and a reoccurring guest on television (Bloomberg, RealVision, etc).

He has over 30 years of buy and sell side investment experience in close to 50 countries around the globe. For the past 15 years he has invested his personal capital in an ETF based, global multi asset investment process. In 2011 he launched Pelosky Global Strategies (PGS), an investment advisory boutique advising Institutions, Hedge Funds and RIAs on portfolio strategy and asset allocation. Prior to PGS he was a Morgan Stanley Strategist & MD. At Morgan Stanley Asset Management, he launched single country and regional funds and served as PM. As a Morgan Stanley sell side strategist, he created the Firm’s Global Asset Allocation, Global Equity & Global Emerging Markets Strategy products and was a top ranked II Strategist in multiple categories.

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James Gardiner
The Letter E

Happy Friday,

Live from Bermuda and no shortage of topics to muse over: earnings, economic data from Spain to Thailand & points in between; abdications, coup accusations and more than enough political theatre to go around.

Hard earned experience (ie mistakes) inform me that earnings and economic data tell the tale and on both fronts the news is pretty good. Earnings across the board be it in the US, Europe or Japan seem to be coming in better than expected; those fearing an “earnings recession” have some thinking to do.

Why? Well first because Q1 EPS is coming in +3% y/y in both the US and EU vs forecasts for negative y/y #s. Second because the economic data is turning in favor of a growth bottom outside the US and the “lower for longer global growth path” we have been discussing. Whether it is new export orders in China, Q1 GDP in Europe or Manufacturing PMIs in much of Asia ex-Japan the growth bottom is coming into the picture.

That leaves policy makers a little askew as the Fed & Chairman Powell reveal with its inflation outlook. A short time ago the Chairman was quoted as calling low inflation “one of the major challenges of our time”; yesterday it was: “some transitory factors may be at work” in keeping inflation below target. It almost makes one yearn for the good old obfuscation of Chairman Greenspan.

Meanwhile like the tide the flows come in and go out: Vanguard’s tech ETF had its largest weekly inflow EVER last week… good thing UBER is coming to feed the ducks. Europe equity funds have seen outflows in 56 of the last 58 weeks (check out @tpwim for some good charts).

Over in commodity land the miners have been smoked while bullish bets on WTI outweigh shorts 14:1… to square the circle flows into long term US bond ETFs were expected to have a set a new record in April.

We stick to the letter E: Earnings and Economics, await further confirmation of Europe’s growth bottom (watch the BUND) and suggest that if you must sell in May that one consider profit taking in the US and buying abroad. Growth bottom plays like base metals, miners, have given back much of their recent gains - happy hunting.

We are excited to note our upcoming webinar in conjunction with the good folks at GlobalX. Please block off 2pm on Wednesday May 15th and sign up.

Where to find 2nd Half Opportunities

After a strong four month run to start the year, are US equities ready to keep roaring, or is it time to consider opportunities overseas? Join us for a conversation between TPW Investment Management's CIO and Co-Founder, Jay Pelosky, and Global X ETF's CIO, Jon Maier, and Head of Research, Jay Jacobs, as they discuss their outlook for the remainder of 2019. 

The trio will discuss a range of topics including: 

  • The impact of the Fed on US and international markets

  • Where to find potential opportunities in the US and overseas

  • How to evaluate China and the emerging markets

  • The implications of potentially lower for longer global growth

Have a great weekend!

Jay and Jamie

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James Gardiner
What a Week!

Happy Friday,

Monday kicked off with a Bloomberg TV appearance on The Open, Tuesday meant a NYSE bell ringing with MSCI to celebrate 30 years of EM indexes ( see picture) Wed - Thursday were marketing heavy and now the Musings (seems like I just did them!).

BTV focus was on our “Lower for Longer Global Growth Path” thesis, the search for a growth bottom confirmation in China data (check), EU data ( patchy) and long bond backups in both China (check) and Europe (Bund remains a widow maker).

Like the Spring weather, the transition from growth deceleration to bottom and recovery outside the US will have it’s fits & starts - the question for investors is what to do about it?

Does one freak out over a minor China equity pullback or see it as nice, healthy profit taking? Should one throw in the towel on Europe once again or does one use weakness to gradually build positions so when the unequivocal all clear is sounded you are not joining the herd but welcoming it on board?

In that vein Tuesday’s MSCI event at the NYSE was fun, informative and well worth the trip down to Wall St. From the flag waving NYSE pump up video, to walking the warrens of the exchange, to trading war stories with my former Morgan Stanley colleague and friend MSCI CEO Henry Fernandez, to being on the podium for the closing bell on a S&P new all time high day…. it was just great.

After the bell MSCI also convened a round table discussion on the future of EM. There was lots of talk of EM ex-China with our good friends at Krane Shares, MSCI’s POV from Henry and others as well as my own 2 cents regarding concerns about the loss of the low cost manufacturing opportunity for EMs as well as the potential to leverage the vast number of EM eyeballs in an e commerce world.

All in all a lot to enjoy and to be thankful for…. TGIF and Let’s go Islanders (heading to game 1 tonight)!

Jay and Jamie

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James Gardiner
Sell (US) in May & Go Abroad

Happy Friday,

Spring has sprung: birds chirp, flowers pop, trees bud & investors consider selling in May & going away.

This year it might be better to sell some US equity and go abroad. Its cheap (@tpwim), less crowded, your dollar buys more (way more) & you can visit places you haven't seen in years!

3 keys for risk asset direction:

  1. China - US trade deal > more & more likely;

  2. China growth bottom > data very supportive

  3. European growth bottom > patchy data. EU PMI shifting from falling sharply to stabilizing to improving.

We want to see the bond markets confirm better econ data, thus Morgan Stanley noting that China 10 year bond yields have risen the most this month since Jan 2017 (roughly 30 bps) which is good news. As is Bunds back above zero.

MS further notes that China bond yields and European stocks tend to move together… has anyone been watching EU banks… bull case building people.

60% of S&P reports in the next two weeks. This will be a leadership test for Tech (22% of index), last week’s Healthcare collapse is worrisome (#2 at 13% of index), Financials (#3 at 13%) have had a post Earnings pop, Industrials (#6 at 10%) are off to a good start…

Shifting to FX, the trade action has been so sleepy its left sell side speechless. However, this JPM chart (global FX vol - USD moves); strongly suggests times this catatonic lead to big USD moves. We expect $ down which reinforces that upside argument for the non US markets.

Finally, the action south of the border has been cha cha like: buy Brazil, sell Mexico, sell Brazil (down 8% past 1 month) buy Mexico (up 9%)...IMF DC soiree seems to have thrown some cold water on enthusiasm for Brazilian pension reform plans…

Cut to a TPWIM commercial: Start next week off right with Jay on Bloomberg TV Monday at 9 am with Jon Ferro.

Happy Spring/Easter/Passover!

Jay & Jamie

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James Gardiner
Spend Money to Make Money….Right?

Happy Friday,

We continue to muse over the implications of a “lower for longer global growth path” including how to get there (confirmation of growth bottoms in China, Europe) & investment implications (ACWX vs SPY, yield plays etc).

Data flow is increasingly supportive of the growth bottom thesis in both China (lending, trade) and Europe (wage growth, IP). Rising long rates remain a tell: China 10 yr at 3.3%, highs for the year while the 10 year BUND breaks back above the zero bound. Rising rates = bullish for banks... European Banks anyone?

Any bets as to whether this week’s IMF downgrade to global growth is the last one for this year? I think so.

Thinking through the investment implications of a “lower for longer global growth path” led us to some charts showing ACWX vs SPX (Rest of the World vs US) over multiple times periods: 10, 5, 1 yr, YTD, 1 month. The scope for catch up by ACWX is staggering while it searches for a bottom (see chart). ACWX has room for multiple expansion (key in low growth world) and new owners; SPY is over owned by ROW and arguably has little room for multiple expansion.

Lots of talk about US High Yield, but one of the most interesting facts I learned this week was that European HY default rates are well BELOW that of the US which is quite low itself. As EU peripheral yields collapse & growth stabilizes, EU HY yielding almost 4% vs. EU Investment Grade which yields 1% looks interesting (Japanese investment flows in EU HY at 6 yr high).

In US HY it is noteworthy that HY energy names have not followed the oil price higher, suggesting perhaps further room to perform even as HYG hits a 52 week high.

UBER’s IPO is generating all kinds of noise - gotta love the line that it may never make a profit… Silicon Valley has really taken the phrase “you have to spend money to make money” to an extreme. LYFT trading down 15% from IPO price suggests the froth may be in the private, not public, markets. A massive loss maker coming to market just as tech buyers start to digest the idea of US tech EPS down 10% y/y in Q1….hmmm, good luck with that.

Finally, the Tri Polar World’s (TPW) regional integration process both ebbs (Splinternet) and flows (Asian connectivity). The Macro Polo folks had a good read (ARTICLE) on how China is speeding up Asian integration, nice 3rd party confirmation as to why we call Asia the TPW’s Proactive Region.

Have a great weekend and LET’S GO UMASS (NCAA Hockey Finals tomorrow night); LET’S GO ISLANDERS!

Jamie & Jay

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James Gardiner
Brazilian Beach Walk

Happy Friday,

Tricky transitions challenge investors, much like the transitions that challenge Brazilian beach walkers when rivers reach the sea as I learned in Bahia this past week. Ocean waves crashing in, river current pushing out, no clear pattern, can't tell the depth but have to cross to continue the walk. As investors we too have to continue the walk.

We are in the midst of several transitions. In the US from tax cut stimulated growth to more normal (lower) growth and in the Rest of the World from growth slowdown to slow upturn (China, EU, EM). US Treasury are rallying on slower US growth (though today’s response to weak PCE # suggest rally is ebbing) while commodities and stocks suggest better (ex US) growth ahead… Dr. Copper up 3% today, 12% for the Q while commodities are Q1’s best performing asset.

Back in NYC & prepping for Wednesday’s Bloomberg Daybreak appearance (good clip here) it struck me that the transition to “lower for longer” can apply to global growth as well as rates. This idea builds off the work TPWIM has done on Potential Growth Rates (PGR) and Neutral Rates of Interest (NRI) both fundamental parts of our Global Risk Nexus Scoring System.

In the clip I discuss how investors need to recalibrate to a world of lower Developed Market growth rates & thus lower rates of interest. The Fed recalibrated and the result was a shift from “Autopilot” to no cuts in the space of a few months.

Our focus remains on the consumer and here the news remains pretty good especially outside the US. German has record low Unemployment Rate (UER) and very strong retail sales (+4.7% y/y), and there is better than expected Japanese UER (2.3%) - maybe Japanification isn't all that bad.

Lower for longer growth is a pretty good environment for risk assets… less risk of being upended by CB tightening in return for more muted return profiles. Yield plays remain attractive. A growth scare suggests when all clear is sounded on China - EU growth moves will be big (Q2 IMO).

The 3 Steps for risk assets remains intact: Anticipate, Confirm, Reallocate. Q1 risk asset performance provides the anticipation, we await confirmation of ex US growth bottoms this coming quarter and expect that to spur reallocation outside the US which in turn will spur a weaker USD.

Have a Great Weekend!

Jay & Jamie

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James Gardiner
Triple M Musing

Happy Monday Morning Musings!

We are starting the week with a triple “M” tongue twister Musing and including for a second time a simple high level view of the markets we call “Skyview”.

Excitement continues to build over China and EM. We remain constructive (See Jay’s appearance on BloombergTV last week) but think better opportunities lie elsewhere right now.

Namely Japanese and European equity, which no one is talking about and which will be big beneficiaries of a China growth bottom. Euro shorts are at 2 yr highs while outflows from EU equity are characterized as “extreme”. Japan has the 2nd largest individual country weight in ACWI at 7% but gets virtually no attn.

Our latest Monthly piece introduced the 3 Steps we see needed for risk assets. Step 2 is to confirm the growth bottoms in China and Europe. That confirmation needs to come from the Government bond market in each case.

There seems to be a big dichotomy between Stocks/Credit in the US and Europe and Bunds/USTs. A back up in LT yields would seem necessary to confirm growth bottoms.

Soon enough Q1 Earnings will be upon us – it will be interesting to see US investor reaction to down #s on y/y basis. Ultimate test of “look thru” investing?

Let’s have a great week!

Jamie & Jay

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James Gardiner
Team Retest on the Ropes

Happy Friday,

Outside, March has come in like a Lion for us in NY with a frosty morning but inside the screens continue to be green across the board.

The 3 keys we have highlighted to support risk assets (China trade deal, EU growth bottom, China growth bottom) look to be upon us. Trump’s NK walkaway sets up a “tough Trump” to declare China trade deal (any trade deal) a big win.

Yet thinking it thru suggests this is only Step One in the bigger picture.

Step 2 requires bond market confirmation of better growth days ahead. Bunds in Europe, China’s 10 yr and the 10 yr UST need to confirm the growth turn. Definitely want to be UW duration on global basis.

Step 3 is USD weakness - its almost universally agreed that the USD is overvalued but Euro/$ net shorts are at 2 yr highs…looks like it's one of those gotta see the whites of EU growth’s eyes before believing it. The lack of faith in Europe is probably one of the big macro opportunities out there. EUFN is acting well… keep an eye out here.

Speaking of USD weakness what is up with the US trade deal demand for a Stable Yuan? Could it be that the US really wants a weak dollar and needs to lock China in first? (I recently was interviewed for on China).

We are in this weird spot of having had a rocking start to the year across assets, leaving many extended and yet risk positioning is very light whether one considers hedge funds net levels, mutual funds cash positions etc.

Couple that with a potential global growth turn, a Fed that is now well aware it needs to manage the outsized financial assets (CHART) & the onset of a global easing cycle suggests Team Retest is gonna have to sweat it out as all that cash is likely to cushion downside risk. Pause, pullback yes, Retest seems less likely.

Not a bad takeaway for a Friday - TGIF!

Jay & Jamie

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James Gardiner
Let the Good Times Roll

Happy Friday,

Economic news continues to be weak yet risk assets continue to rock - what does that tell us?

Markets sniffing out the turn perhaps with faint glimmers of better econ news in both China and Europe. We have been of the view that we need 3 things to take risk assets higher: China trade deal, EU economic bottom, China economic bottom. Markets are telling us we are close on all three.

March could be interesting with Fed potentially ending QT while the ECB preps another round of TLTROs for the banking sector – that would be great news for the beaten up EU banks (EUFN), which have held in well the past two weeks in face of bad news from UBS, HSBC, etc. Jay was recently on Bloomberg TV discussing a beginning of a global easing cycle. (CLIP)

US pushing for China Yuan stability pledge - why, thank you very much President Trump. Chinese equities look to be in early stages of a bull market fueled by fiscal & monetary stimulus, a bottoming economy and foreign/domestic investor lack of participation.

Regarding things to look forward to, many may be aware of the May EU Parliamentary elections but how about the likely Brazilian Congress votes on pension reform? The latter could well turn out to be more important.

Speaking of overlooked, could it be that the much maligned commodity sector is staging its own bull market? Dr. Copper has put in the prescription for higher prices, up 6% on the week (sorry, sick this week so have docs & prescriptions on the brain). A loose Fed & China stimulus that is starting to take root (did you see the total social lending #s), would seem to be just what the doctor ordered. Gold up on prospects for a global easing cycle to begin + CB buying in size; oil rallying on the back of OPEC production cuts, base metals up 4% or so on the week.

How about all that cash on hand? US cash up .5% ytd vs Barclays AGG up 2x that and global equity up 20x. Safety is expensive with the safest stocks (hi quality, low debt) trading at 25x forward vs 16-17x SPY. Buy the dip would seem to be inevitable.

But isn’t the question will we get the dip? Well, 5 of the major assets: US stocks, US IG, US HY, oil and gold are all over overbought at 70+ on 14 day RSI for the 1st time since 2000…. a pause seems likely

Enjoy the weekend but don't party too hard….

Jay & Jamie

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James Gardiner
Video Killed the Radio Star

Happy Friday,


A packed three days at the Inside ETF Annual Conference provided some food for thought.

Big is Bad was in the zeitgeist… Billionaires (H Shultz), Big Tech, big meals, etc. The Hometown news that Amazon would not move forward with its NYC HQ2 plans seems to cement the thesis and has to send a shudder through techland. Could antitrust be a real threat?

EM captured a lot of attention (I spoke on an EM panel) though tinged with concern over the China trade tiff and the brewing fight over AI. Given the US economy a trade deal is a done deal IMO. News came during the conf that the US would launch its own American AI Initiative; Splinternet anyone?

I spoke of the potential turn to a global easing cycle led by EM Central Banks as China eases & India cuts rates, while Turkey & Brazil are is likely to follow suit. This sets up the Commodity segment, especially metals and mining to augment gold and oil.

DM ex US, aka Europe and Japan, got no play whatsoever. Europe reminds me of the old adage - the news doesn't have to get better, it just has to get less bad. I think we are getting close in terms of European econ data. Japan is a cheap global cycle play with an underlying PE bid.

This in turn suggests the German Bund yielding 10 bps is gonna be one heck of a short as soon as the econ news starts to turn. Bill Gross retiring and blaming the Bund trade for his poor performance reminds one of Julian Robertson of Tiger’s famed walkaway in the final days of the dot com bubble.

The search for yield was a topic across the conf and in the markets as EU periphery debt finds ready buyers, EM debt continues to do well while US HY has been an alchemist's dream - turning what was dross a few months ago to gold today. Remember the BBB threat - not so much.

The pain trade is clearly higher: higher stock prices, higher HY prices, and higher risk asset prices. As the chart shows, cash levels are at highest levels since 2009…. Could buy the dip be coming back? (See Chart)

One thing that is coming back is the old song: Video killed the Radio Star… video was everywhere down in (appropriately named) Hollywood FL; we will have some good clips in the next weeks from our friends at ETF Trends and Asset TV among others…. Something to look forward to 

Enjoy Presidents Day Weekend

Jay & Jamie


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James Gardiner
Sorry to See You Go January!

Happy Friday,

From the worst December since the Depression to the best January in over 30 years, it's been V for Volatility.

Fed whipsaw action (see chart) is only the latest catalyst. My 2 cents is Fed heard the argument that financial markets have caused last several recessions and in the age of machines its more dangerous than ever to get behind the curve.

A low growth, low inflation world = a world of low potential growth rates (PGR) and neutral interest rate (NIR) structures. In turn, that is a new world that policy makers & investors need to get used to. BTW, both PGR and NIR are key components of our Global Risk Nexus (GRN) scoring system.

This suggests we are closer to the end of the rate tightening cycle and the beginning of a global easing cycle than many expect - question is whether Fed or EM CB’s lead the way?

On BTV's The Open show w Jon Ferro earlier this week Jay highlighted 3 conditions for sustained risk asset recovery: China trade deal, growth bottoms in China & Europe, and CB stability.

Check the CB stability box for now. A China trade deal looks likely as Pres. Trump preps his “only I can fix it” one on one with Pres. Xi (really set up by the Govt shutdown). Simple repetition of China’s offer to buy more stuff does raise concern that China feels it has Trump over a barrel.

Economic bottoms are becoming closer as China stimulus = to 5% of GDP (according to JPM) combined with EU fiscal stimulus. Watch the consumer: consumers in US, China and EU all in good shape. Once data supports a bottom it's gonna be a food fight in EU and China equity & a bloodbath in Bunds.

Enjoy the Super Bowl – Jay is a Mass boy born and bred so his marker is on the Pats!

Jamie & Jay


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James Gardiner