2016-2018 Growth Cycle
Jan 21, 2016: It’s time to start building exposure to risk assets. Back in late October, I published a note entitled “It’s Time to be Neutral or Short Risk.” I now think that current market levels and conditions warrant getting long. The bottom will take some time to form... But I do believe that we are at the beginning of the end rather than the end of the beginning. (S&P 500 Chart below)
June 23, 2016: Here comes the squeeze… the backdrop I presented above is a good backdrop to get long equities after or potentially just before the British referendum. (S&P 500 Chart below)
Aug 22, 2016: It’s Time to Short the Front End (USD 2 year swap rate below)
Nov 9, 2016: EURUSD: The current market tone is focused on protectionism… a substantial move lower here would make a long position attractive. (EUR vs USD rate below)
Dec 8, 2016: Long S&P vs Russell. Higher real rates are negative for small caps relative to large caps. The current levels are already extrapolating a jump in growth. (S&P 500 vs Russell 2000 price ratio below)
Feb 24, 2017: If yields can’t go higher on good news… what will? In my last note in early Dec, I suggested getting some exposure to duration via selling out of the money puts on 30y treasuries. I think it’s time to upgrade that view to building duration outright. (10 year treasury yield below)
Oct 3 2017: Reasons the front end can reprice higher: Currently, financial conditions are as easy as they were just prior to the taper tantrum… it’s been easier since the recession was in mid 2014. If the Fed doesn’t hike in Dec, they would EASE financial conditions even further. At this juncture, even with inflation prints coming in weak, the FOMC does not want financial conditions so easy – especially with unemployment so low. (USD 2 year swap rate below)
