TPW Investment Management

Weekly Musings

Friday Musings

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!!

James Gardiner