WorldoutofWhack

Armstrong economics explains it beautifully

“The interesting fact is that the majority of fund managers today have reduced their equity allocation to their lowest level since November 2016 according to Reuters. The reason for this is their focus of trade and their assumption that the Great Depression was caused by a PROTECTIONISM. According to yet a recent monthly report by Bank of America Merrill Lynch (BAML) where they conducted a survey of fund managers, the majority, some 60%, now fear a trade war. Clearly, the biggest concern out there is a trade war poses the greatest risk to the stock market. Another 19% fear excessively higher interest rates by the Federal Reserve. These two perceptions are the dominant reason we see consolidation.”

Michael Harnett at BOFA writes “Investor sentiment is bearish this month, with survey respondents eyeing the risks from a possible trade war,”  Within Equity Allocation Emerging market equity allocations were among the biggest casualties of the growing trade war fears. These suffered their biggest monthly drop in two years, taking the allocation down 23 percentage points to a net 1 percent underweight. (and you expect equities to fall?) yeah right

BAML further said this was the most crowded trade outright since “long U.S. dollar” in 2015. The allocation to tech stocks rebounded 10 percentage points to a net 33 percent overweight in July, making it the most favored sector of the month. (so everybody is long dollar hmmm )

Conclusion
I know they dont ring the bell at the top but “The sharp decline in asset allocation to equities has not been met with a collapse in market prices. so clearly market knows something and is not worried,this is a very interesting development for the majority NEVER manages to sell the high”.

The global crisis is building in debt rapidly. After BOJ even the ECB came out and said it would stop its bond-buying program. Putin is selling off US debt very rapidly because of interest rates. The spin is always  political, but the trend toward higher rates is the real driving force. China also a large holder of US treasury will have to start selling US treasuries as they go into current account deficit.

Rising US rates will also act  as anchor to Global bonds.

In an upward cycle for interest rates, never lock & load – always stay nimble if you are the investor.The one thing you do not want to do is buy a long maturity paper . As rates go higher, you will be locked in and unable to take advantage of the rising rates. The safest thing would be to put money in overnight fund or commercial paper no more out than 90 days and keep the cash rolling in that area until we reach a point when the rates are peaking. Toward the end of cycle, is when you should look to add extremely long bonds.

On a risk adjusted basis liquid funds ( which invest in less than 90 days) have delivered the best returns over last 3 years

IF you want to play curve steepening then there is hardly any instrument in Indian Markets.More seasoned investors who want to play US strength and possible US curve steepening can do through

TBF -ETF

(The ProShares Short 20+ Year Treasury ETF provides daily inverse exposure to an index that tracks the performance of US Treasury securities with remaining maturities greater than 20 years.)

More on TBF

http://etfdb.com/etf/TBF/

Halfway through the year 124 new ETF have launched and there’s no question, the flow of new exchange-traded products coming to market remains robust.According to ETF.com there’s also some truly interesting ETFs that offer investors unique exposure and three of them caught their eye.

1.Amplify Transformational Data Sharing ETF (BLOK) expenses 0.7%

The Amplify Transformational Data Sharing ETF (BLOK) is a blockchain ETF. The SEC may not allow issuers to use that term in a product’s name, but that’s what BLOK and five other similar funds that launched this year really are.Blockchain ETFs are a way for investors to potentially capture the upside in cryptocurrencies indirectly. They could even prove to be superior to investing in cryptocurrencies directly.

2.Rogers AI Global Macro ETF (BIKR)…… associated with Jim Rogers expenses 1.18%

In the ETF world, there’s only one buzzword that’s arguably hotter than blockchain:artificial intelligence. Though the first ETFs to use A.I. came about in 2016 and 2017, this year has seen an explosion of funds using artificial intelligence.Distinct from ETFs that hold stocks of AI-related companies, these funds use AI models and algorithms to pick which stocks to hold. One such fund is the Rogers AIGlobal Macro ETF (BIKR), which launched amid much fanfare in June.

BIKR is not necessarily any better than other AI-powered ETFs, but it has the benefit of being associated with famed investor Jim Rogers.

3.Vanguard U.S. Liquidity Factor ETF (VFLQ) Expenses 0.13%

It currently is the only fund to specifically target stocks with low levels of liquidity.

In Vanguard’s view, less liquid stocks tend to outperform more liquid stocks over the long term. It’s the same factor that big investors such as endowments and foundations try to get by buying real estate and private equity, according to the firm.

There are six ETF in this category

Japan was a bag of nerves today following the sell-off seen in JGB’s as 10yr rates moved from 3.5bp to 9.5bp. Only 6 BP move but ask Bond traders ….This is a HUGE MOVE  , JGB are known as widow makers.

This is the clearest example of a bubble. Think about this… The Bank of Japan makes a tiny, minuscule, ridiculous alteration to its monetary laughing gas policy,and sends bonds and markets rolling

The BOJ were forced to address the issue after talk that they were engaging in “unusual active discussions” according to an earlier Reuters quote. 10yr bonds closed around 8bp whilst Super-long 30yr closed 0.785%.

Martin Armstrong writes in his blog that…This is typical of the market not knowing how to interpret a move of higher rates from an unreal absolute level. Shanghai is moving on the Yuan move opening negative then spent the day trading higher to close up 1% by the close. More Yuan weakness is expected. SENSEX continues to benefit from the weakening INR ( yes slowly depreciating currency is like a fiscal stimulus) and  even managed a all-time peak intraday, this has more legs yet.
European stock indices were lower during the morning session, but that is probably a result of USD strength in the afternoon.

The cash flow continues to find its way to the US and that only looks to be accelerating. European bonds are starting to weigh on markets, even though volumes are light. US markets were traded within an extremely tight range given recent activity. After hours the Alphabet release was better than expected and shares jumped another 4%.

Banks shares are rallying as global bond market yields rise and curve steepening ( good for banks profitability).

On Friday we see the US GDP release and a possible 5%+ ( as per Barclays) highest since 2003 and that could really set things going! Momentum remains strong supported by earnings, a healthy GDP number will light the fuse.

So who is bearish on equities and bullish on Bonds?

More on Macro Call on Global markets please read this 9th July post.

http://worldoutofwhack.com/2018/07/09/market-view-is-the-coast-clear/