TPW Investment Management

Weekly Musings

Friday Musings

Don't Mess with LaGuardia

Happy Friday - lots to chew over.

The longer the US Govt shutdown lasts the greater the chances that the Fed will rethink its “QT on autopilot” stance as consumer sentiment suffers. The shutdown also improves the chances for a US - China trade deal - no way the US can handle both. If the shutdown ends (today’s LaGuardia shut down suggests we are getting close) then markets can respond favorably - so a win-win.

Cross asset correlations are at a one year high as V for victory plays out (See last week’s Musings). QT adjustment could be catalyst for correlation breakdown as dollar breaks lower while gold rallies and non US equity outperforms.

So far we have seen the best January in almost 30 years which reflects the magnitude of December’s collapse which priced in a boatload of bad news. Weak EPS and lower guidance (see chart below) is in the price. Look no further than the banks last week & the Semis this week. It's not the news but the reaction to the news that tells the tale. Back to buy the dip?

2019.01.25 ERR.png

It's not just poor earnings that are priced in as European equities rally sharply in the face of deeply disappointing EU and German econ data releases. Who doesn't know that European growth is below expectation?

EU silver lining alert - strong real wage gains and decade lows in unemployment should lead to better consumption and service sector activity (German Service PMI up 2 months running). We are focused more on the consumer than on the manufacturing side of things.

For some weekend reading check out the Economist cover story this week - Slowbalisation (Link). Great validation of our Tri Polar World (TPW) thesis - one we have been working on for going on 7 years.


Enjoy the weekend!

Jamie & Jay


James Gardiner