Higher Yields a Vulnerability for US Housing

Higher US yields are already leading to higher mortgage rates in the US.  Building permits are one fo the best leading indicators for housing, and mortgage rates themselves lead building permits.  The next chart shows the modest recovery in building…


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Higher Inflation Expectations to Favour Equities over Bonds

(from our Tactical of November 8th 2016) Bond yields have been rising in most countries, and yield curves have steepened across the developed world.  As the top chart shows, the rise in nominal yields has come from a rise in…


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Greatest Risk to EM is a Higher Dollar

(from our Tactical report of 8th November 2016) Flows to EM equities have been high lately (3m flows over last 2 years to EM ETFs are in their 80th percentile – chart below). Source: Macrobond, Bloomberg and Variant Perception The…


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Credit Spreads and Equity Volatility to Rise

(from our Tactical report of 1st November 2016) Equity volatility and credit spreads are almost perfectly correlated. In part this is because equity is a perpetual option on the solvency of a firm. When credit becomes stressed, equity volatility jumps…


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Euro to Remain Better Supported

(from our Tactical of 18th October 2016) One currency that may buck the trend and remain supported against the dollar is the euro.  Although tapering from the ECB does not look imminent, core inflation may start surprising to the upside…


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Retail Stocks to Suffer Due to Higher Inflation

Retail sales will suffer in the months ahead due to rapidly rising medical and rental CPI.  Whenever rental and medical costs have risen significantly in the past, they have led to a big decline in retail sales.  You can see…


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Look for Opportunities to Re-accumulate Gold Stocks

(from our Tactical of 11th October 2016) Goldminers have a notoriously high beta to the price of gold, and they didn’t disappoint last week, with the GDX dropping 13% vs down 4.5% for gold.  However, we have had a technical…


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Real Yields Wildly Mispriced Given Stagflation Light

The US now has the worst combination of outcomes, poor growth and rising inflation.  Bond yields are now the most negative they have been in almost forty years.  Only in the 1970s during stagflationary episodes were real yields this negative.   …


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Firm Positive Drivers for Euro

(from our Tactical of 13th September) Drivers of the euro are showing support.  When the ECB in March of this year shifted its emphasis from the rate channel to the credit channel for the transmission of monetary policy, this took…


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Lower ISM Ahead, Weak Read for Stocks

The ISM Manufacturing Index came out at the beginning of the month and offers a dim view of the next three months for US manufacturing as well as for stocks.  The key data we focus on in the ISM is…


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