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...

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...

USD Positioning Supports Weaker Dollar

In January and February we discussed our view that we thought the dollar would find it difficult to rally further and would instead display a modest weakening bias.  The initial leg up of the rally in 2014 was not due to higher yield differentials with the US, or the...

Earnings to Fall Further

Profit margins are declining, and we expect them to fall much further.  As you can see from the chart below, Variant Perception’s leading indicator for wages does a very good job of leading US corporate profit margins by a little over a year and a half. The message is...

Commercial and Industrial Lending to Fall

You can take a horse to water, but you can’t make it drink.  This is generally the mistake made by many when it comes to credit.  If you expand the availability of credit, and make it more attractive, then more people will want credit.  But this is rarely the case. ...

Inflation Alive and Well in the US

We have focused on the theme of the misplaced fear of deflation at Variant Perception frequently over the past 18 months.  At several points, markets and commentators seem to have become preoccupied with a belief that growth-destroying deflation was imminent. Using...

The Market and the Economy

We discussed earlier last month how investors should not confuse the market and the economy.  The market might be volatile and suffering losses at the moment, but the US economy is still ambling along.  Manufacturing is likely in a recession, but the service sector is...

Buyback Boom Peaked, Debt Hangover Ahead

Over the past four years, companies that have bought back their stock have outperformed the market significantly. Most companies did not finance the buybacks with internal cash flow and borrowed at low rates to buy their own shares. The cost of debt is mispriced, so...