FOX BUSINESS NEWS Intelligent Report Talking Points

2H Outlook – More of the Same Please – synchronized, moderate, global econ recovery (ALL OECD Cts growing – V, V rare, 07, 84) w low infl leads to low rates, slow moving CBs and good env for fin risk assets, esp. stocks buoyed by rising E. Rising Ind Metals confirms this. Dr. Copper +36% last 1Y, +11% Q3 td.

Central Banks shift from tailwind to moderate headwind. Expect Fed to go slow in policy normalization – Fed now has optionality meaning it can cut, as well as raise, rates. This is good news and better than any time in prior several years. Demand for safe haven, long duration assets means Fed cant raise short end too quickly or it risks inverting yield curve…2/10 spread only 80bps.

Peering Thru the Mist Outlook piece last week – DC a mess, WH turmoil, Charlottesville fallout, hard to imagine worse week or month for T Presidency…

GRN score for politics & policy a 1 w 5 the best. Reflected in August mkt perf: GLd +4%, TLT +3%, SPY +.2% ( XLK +3%,XLF -1.6%, XLI +.2%)

Given 18 month rally with V few pullbacks, PMs need to stay invested yet need some protection (UST, GLD.SLV),  stks not overbought, SPY up only 1.6% past 3 months., sentiment muted, cash levels reasonably high, big outflows from HYG. Barbell: stks + GLD/SLV.

V busy Fall: debt ceiling, bdgt, tax reform, NAFTA, now add DACA, Harvey…. V little expected out of DC as indicated by weak USD and small caps which were big post elec winners… R need something to run on in 2018 midterms and think reasonable to expect modest tax reform by Q2 18 > potential invst opportunity. Apparent Trump debt ceiling deal may be first step.

FALL SURPRISE: DC gets a W > mkt winners = oversold USD & underowned small caps ( +4% ytd, -1.3% Aug – lookfor laggards)… $ bounce hurts large caps > $ into small caps (IWM). 

CAP EX CYCLE: Like Industrials (XLI, stks like GE) recent Philly Fed survey suggests cap ex spending plans at 30+ year HIGH, Harvey only increases likelihood.

USD doesn’t want to go down: Trump troubles, Harvey, NK missiles, UST rally and $ flattish…any sign of DC policy success and $ will rally.

WALL OF WORRY:  Stock mkt has proven real big boy ability to climb Wall of Worry… in addition to above, seasonality, NK concerns real… also sector leadership concerns with tech in cross hairs of Govts around globe…expect modest SPYupside thru YE with limited downsidebut see better Opps elsewhere.


V keen on Europe – cyclical econ recovery + lots of slack + 2nd leg driven by regional integration w M&M team (Merkel V supportive of Macron EU agenda – Fin Min, EMF etc.) suggests best region next 3-5 yrs.… Euro due for a breather as $ recovers a bit… EU stks mark time since May – EZU, EWP, EUFN… Euro means V slow ECB unwind = positive for stks.

Japan… A big laggard even though best & broadest econ recovery in yrs > E growth, play on global recovery…. Yen sentiment most bullish in yrs yet couldn’t break new levels even w NK missile flyover…like DXJ.

China – Fall PC Oct…. Fortune Global 500… 110 or so Chinese companies… V big future focus…EM equity tricky – had great run YTD + August (+2.3%) but if $ recovers that shld challenge EM…


Express Daily, UK: Macron and Merkel Are Using Brexit and Trump To Salvage Crumbling EU Bloc

Jay Pelosky said the combination of Brexit and the election of Donald Trump had re-focused the minds of EU leaders pushing for further integration. The senior global macro strategist added France and Germany needed to work together as the powerhouse of the Brussels bloc and recent events in the UK and United States were helping.

Speaking on Real Vision Television, he said Brexit and the Republican billionaire were the “Superbowlers” for European integration and the continent could be the “most attractive” region to invest in over the next five years.

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BloombergTV Daybreak: Clip & Prep Notes

My out of consensus call: More of the Same for 2H,  is off to a good start.

Research provides major support:  in yrs where 1H drawdowns are under 5% ( 1H 2017 max drawdown = 2.8%) the 2H performance its even better, averaging 8% with 80% up yrs.

So low volatility begets low volatility both in the economy and in the mkts.

What can go wrong? Need to understand risks that can overthrow low vol regime. I use my Global Risk Nexus ( GRN) framework to analyze global economics, politics, policy & markets.

GRN suggests 4 potential risks: DC disfunction, Fed policy mistake, China credit crunch, disappointing earnings. The last is most concerning; I expect PG 2Q earnings but less robust growth in 2H earnings as comps get tougher, likely limiting 2H US upside.

DC policy inertia no longer a surprise - need Govt shutdown, impeachment talk to really affect markets - the former is possible, the latter unlikely this yr, thus stks are able to make new highs in week Pres son admits to meetings Russians.

Fed policy mistake is key Q - another reason to support mkt move last week as Chair Yellen made it clear Fed would go slow… as noted in my piece Fed now has optionality it didn’t have a yr ago. Fed can raise OR lower rates as it needs. Mkt less concerned about Fed, good for stks, bonds, EM.

China credit crunch is a perennial on the bear case list but dont expect to see any big issues in 2H… long China. (MCHI).


Key call is to remain OW non US Dev Mkts that are taking  global equity leadership from the US which has led since GFC bottom in 2009. Europe is preferred area; VG econ data flow yet stocks have been weak as rates rise, esp in Germany. This is a good buy point as 3 major investor bases not yet involved in Europe: SWFs/PFs, reserve managers ( Euro) and companies themselves w stock buybacks at 11 yr low. Play Europe 3 ways: regional ETF ( EZU), favored country, Spain (EWP) and top sector, banks (EUFN) which are massively outperforming US banks. Just in past month Spain and Italy have made major strides in cleaning up zombie banks and NPLs, issues that have bedeviled the region and these countries for nearly a decade….

US equity has a Q of leadership: financials still below March peak, tech pretty well played, etc… I like Industrials which are beginning their 1st major cap ex upgrade cycle in 15 yrs… sector ETF (XLI) as well as stock (GE), an American icon that is at its 52 week low, just absorbed a downgrade by a top tier bank, has a new CEO tasked to make changes and pays a 3.5% div while you wait.

Also like gold as protection in case one of the risks noted above materializes or NK goes sideways, Gulf conflict heats up etc. Large spec futures report 2nd largest short position EVER in gold… 

When many assets are close to all time highs its really nice to populate the portfolio with items that are close to 52 week lows like GE, underowned like Europe or sporting near record short pos like Gold (GLD).


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WORLD POLITICS REVIEW: Trump Should Look South to the Americas for His Trade Strategy

Here is a piece on the Tri Polar World where I argue that both top down geo economic and geo political forces together with bottoms up corporate supply chain reshaping are driving regional integration, aka the TPW. The Tri Polar World global framework has been instrumental in driving a differentiated investment perspective as illustrated in my Top 5 Trades of 2017 video which I made available earlier this week.

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BloombergTV Daybreak: Deutsche Bank Cash Call & Fed Activation

In this Bloomberg Daybreak America appearance I reiterate the case for EU banks in the context of DB’s capital call, noting that  EU equity block trades are up 100% y/y which suggests that large investors want access to EU equity such as DB’s capital call.The second segment covers the Fed and its sudden embrace of a March rate hike, including the likely response of risk assets (Segments begin at the 6:30 min mark).

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Sirius XM Radio: Behind the Markets

15 Minute podcast on the investment case for non US equity (Europe, Japan  & China). Interview includes the 5 factors supporting European equity; Japan’s return to inflation in 2017 & its implications for domestic asset allocation; and how one is being paid to take risk in a Chinese equity market that just may find itself in a trade war with the US yet is 50% off its recent highs. 

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