TPW Investment Management

Weekly Musings

Friday Musings

Don't Look Now

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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James Gardiner
Pura Vida

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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James Gardiner
Summer's Last Gasp

Happy Friday,

While in NYC is doesn’t feel like we are about to start fall with temps in the upper 80’s the markets are starting to position for the Fall Rally we have been calling for (See our most recent As The Tri Polar World Turns).

China trade delegation is in DC - momentum building to a possible interim or skinny deal (hey, who doesn't want to be skinny); possible deal date: a mid November APEC Summit meeting between the two Presidents in Chile.

For a President who wants to be known as a deal guy President Trump just had one possible deal/photo opp  - with Iran - blow up last weekend. Blame game, retaliation all TBD but with the world’s 3rd largest annual defense budget, over $80B, Saudi ought to get a refund.

ECB last week, Fed & others this week, Mexico next - hard to fight global, full throated CB easing… liquidity tap is open & with Lower for Longer Global Growth, that liquidity is likely to go into financial assets. Note Econ Surprise Indices (ESI) are turning up sharply throughout the major economies.

While the liquidity tap has been turned on the fiscal pump is also starting to be dusted off over in Europe (& Asia too looks at India with huge biz tax cut last night). Draghi made it clear it is most necessary and the French, Dutch and who knows perhaps even the Germans have heard him. Will it be enough, soon enough - TBD but China’s targeted stimulus has had the beneficial effect of exposing Europe as a free rider on global demand. 

As we say at TPWIM, self finance, self produce & self consume are the 3 drivers to the Tri Polar World’s process of regional integration. Internal demand creation is key to Europe’s growth future.

Speaking of liquidity flows into financial assets...One Q is whether those flows will be into public or private assets? The botched We IPO - following Uber, Lyft etc suggest some bubble elements in PE land as the private funds get bigger & bigger & bigger. Funny how the mark to market crowd isn't buying into nonstop $ losing as an ongoing business strategy.

While private equity has replaced hedge fund as the two sweetest words on Wall St virtually every public equity return forecast on a 5-10 yr forward basis is mediocre at best. These forecasts of course help fuel the PE $ wave. I wonder if those forecasts take into account 10 yr UST yields under 2%, ever smaller # of public co and continued strong buyback programs? The scarcity value would seem to be in the public, not the private, markets.

Enjoy the warm weekend in the NE and welcome in Fall!

Jay and Jamie

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James Gardiner
Back to School

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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James Gardiner
Quick LDW Update

Happy Friday,

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

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

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

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

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

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

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

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

Rest up, September is sure to be interesting!

Jay and Jamie

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James Gardiner
Cooler Days Ahead

Happy Friday,

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

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

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

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

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

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

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

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

Enjoy the cool weather!

Jay and Jamie

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James Gardiner

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