TPW Investment Management

Weekly Musings

Friday Musings

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

James Gardiner