12 Years of VP vs Noise
Sharing the ideas and experiences that have influenced our work
More TED Spread Widening on the Way
(from our Tactical report of 26th July) One of the early warning signs of the 2008 crisis was the widening in credit spreads such as the Ted spread and the Libor-OIS spread. There was a run on the shadow banking system as the credit-worthiness of many financial...
EQUITIES: LOW PROJECTED RETURNS FOR UTILITIES SECTOR
A theme we have been tracking throughout the summer has been the very low projected returns over the next 6 months for the utility sector globally, as investors have crowded into defensives. We highlight this below with two charts showing the VP Equity Leading...
Negative Feedback Loop in Europe
While most of the attention post-Brexit has been on the UK, we are far more concerned about Europe. Markets and the economy operate in a feedback loop, and the performance of European banks relative to the stock market points to a fall in lending ahead in Europe. ...
USD to Continue Weakening Bias as Risk Recedes
Brexit predictably caused the USD to rally, as any global risk-off episode will do. However, we reiterate our view that the USD will have a tendency to weaken, after the current rally dies out (which it already appears to be doing, with the DXY basically going...
Smaller Impact on USD from Fed Rate Rises
(from our Tactical of 31st May) We have long argued of a dovishly leaning Fed with Janet Yellen at the helm. The market eventually got the Fed’s message. The total hikes priced in over the next 6 months were stable at around 80-90 bps for the last 2 years of...
More Negative Outlook for the US Economy
Just as the Fed looks like it’s gearing up for its second rate hike in ten years, we get some disappointing news from the US economy. Building permits in the US, whose growth has been trending down, are now contracting on an annual basis (we look at the 3m average...
Brazil: Speculators Take Profits on BRL and BRL Assets
We turned bullish on Brazil back in February. Our leading indicators had been turning up, the effects of previous Selic hikes had begun to recede, and we expected inflation would fall, opening up the path for interest-rate cuts. Year-to-date, Brazil has delivered...
Monetary Policy Still Too Hot for Germany
An ongoing theme we kept coming back to throughout 2015 in the eurozone is that monetary policy tends to either too hot or too cold for the core or periphery. The ECB’s attempts to fight deflation and reflate the periphery have fuelled increases in German mortgages...
Peak in Heavy Truck Sales Point to Cyclical Pain
Heavy truck sales are oddly a good leading indicator for the economy. It is odd because a lot of industrial production is coincident with the business cycle. However, if you go back over forty years, you can see that recessions have always been preceded by a decline...