12 Years of VP vs Noise
Sharing the ideas and experiences that have influenced our work
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 divergence buy signal for the GDX (chart...
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. We don’t see a high...
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 a weight off the euro. Since that...
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 the relationship between New Orders to Inventory. The ratio leads the...
US Corporate Debt Near Records, Credit Spreads to Widen
The present calm in high-yield markets is entirely unwarranted and at odds with where we are in the US credit cycle. Corporate debt to GDP in the US is at all-time highs. In the past, whenever corporate debt reached around 42-45% of GDP, the US approached a...
Higher Inflation Target –> Even More Mispriced USTs
A discussion of late has been whether the Fed should raise its inflation target. We think this would be a bad idea. Currently, with a 2% target, the Taylor rule implies the Fed Funds rate should be closer to 2%. With a 3% inflation target, the Taylor rule would...
In the UK, the Answer is Not Blowing in the Wind
In this short blog, we will show how we looked at the UK economy going into the UK's referendum to leave the EU, and why our approach meant our forecasts were not reliant on the referendum's result. We also show what our indicators are telling us now. Readers who are...
Bond Yields Diverge from Inflation
Bond yields are currently diverging in a very big way from economic fundamentals, and our valuation tools point to a rise in yields. Normally, there is a very tight correlation between the change in the ISM prices paid survey and the changes in the 10 year yield. ...
US Profit Margins to Fall Further
Equity prices are rising and being driven by momentum, but profit margins are set to fall further in line with late-cycle wage pressures and tightness in the labour market. The biggest cost to businesses is the cost of employees, and the unemployment rate leads the...