TPW Investment Management

Weekly Musings

Friday Musings

Team Retest on the Ropes

Happy Friday,

Outside, March has come in like a Lion for us in NY with a frosty morning but inside the screens continue to be green across the board.

The 3 keys we have highlighted to support risk assets (China trade deal, EU growth bottom, China growth bottom) look to be upon us. Trump’s NK walkaway sets up a “tough Trump” to declare China trade deal (any trade deal) a big win.

Yet thinking it thru suggests this is only Step One in the bigger picture.

Step 2 requires bond market confirmation of better growth days ahead. Bunds in Europe, China’s 10 yr and the 10 yr UST need to confirm the growth turn. Definitely want to be UW duration on global basis.

Step 3 is USD weakness - its almost universally agreed that the USD is overvalued but Euro/$ net shorts are at 2 yr highs…looks like it's one of those gotta see the whites of EU growth’s eyes before believing it. The lack of faith in Europe is probably one of the big macro opportunities out there. EUFN is acting well… keep an eye out here.

Speaking of USD weakness what is up with the US trade deal demand for a Stable Yuan? Could it be that the US really wants a weak dollar and needs to lock China in first? (I recently was interviewed for ETF.com on China).

We are in this weird spot of having had a rocking start to the year across assets, leaving many extended and yet risk positioning is very light whether one considers hedge funds net levels, mutual funds cash positions etc.

Couple that with a potential global growth turn, a Fed that is now well aware it needs to manage the outsized financial assets (see below) & the onset of a global easing cycle suggests Team Retest is gonna have to sweat it out as all that cash is likely to cushion downside risk. Pause, pullback yes, Retest seems less likely.

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Not a bad takeaway for a Friday - TGIF!

Jay & Jamie

James Gardiner