Blog

China: the Capital Leak Grows

A pivotal theme for 2017 will be capital outflows from China leading to contraction of domestic liquidity. Policymakers in China managed boost domestic liquidity earlier this year by state-directed lending, but there are signs capital is leaking out at an accelerating...

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Stronger Dollar Toxic for Emerging Markets

In the past few monthlies we’ve warned that a strong dollar has the potential to cause emerging market crises.  From a valuation standpoint, the dollar is very overvalued against almost all currencies, but rising interest rates and the appreciating momentum may drive...

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Emerging Markets: Turkey and Mexico Beaten Up

One of the main promises of Trump’s campaign was building a wall with Mexico that the Mexicans would pay for as well as renegotiating NAFTA.  Mexico’s stock market in dollar terms is now back to 2009-10 levels.  Investors are pricing in an awful lot of bad news. ...

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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 permits is likely...

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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 rise in the USD is a risk to these...

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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 as well. You can...

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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 from the chart below that Medical CPI plus...

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