TPW Investment Management

Weekly Musings

Friday Musings

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.

2019.02.01 Fed whipsaw.png

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

 

James Gardiner