Sunday, May 18, 2014

Looking Back - in a Mirror

As we look ahead towards next week, here's a quick look back at the last and what we see developing in the markets going forward. 
  • The Nikkei looks vulnerable to another leg lower.
  • The Japanese yen appears ready to follow the inverse move in yields and break higher - awakening volatility across asset classes.
  • We expect broad pressures on the US dollar to build from moves in the yen and the euro - as well as commodity currencies such as the Australian dollar.
  • Inflation expectations have largely improved, with the commodity markets strongly outperforming equities - while real rates continue to trend lower.
  • We anticipate the trends in long-term Treasuries/yields to continue beyond the normal distribution of expectations.
  • Momentum in precious metals appear poised to break out of their long and drawn out bases.
  • Emerging market and Chinese equities have strengthened relative to the initial cracks in the US equity markets. We expect these burgeoning trends to continue stair-stepping higher relative to the US. 
In essence, a mirrored move of the markets last year.

Monday - 5/12 - Custer's Ghost  "A bookend to some of the contradicting and confusing conditions witnessed these days, 2011 was another important - but confounding, time period in the markets. Many participants were on the lookout for runaway inflation after Bernanke unleashed the second salvo of QE in the back half of 2010. Back then, risk appetites across broad swaths of the market were basically running unbridled, closely correlated and at full-bore. 

Thursday - 5/15 - Thursdays With Tepper

Thursday 5/15 - American Graffiti
"The writing on the wall that began ever so discretely and scribbled in pencil has become full blown graffiti installations - replete with colorful tags and innuendo.

CAPE ratio's? - Permanently high.
Euphoria? - Everyone's looking.
Bid? - Endless.

Friday 5/16 - Weekend Update 

"At this time last year we had commented on the continued loosening of correlations in the markets from the historic extremes witnessed in the fall of 2011. Our general impression was that underlying market conditions across asset classes buttressed the case that risk appetites would continue to be hearty and it didn't make much sense from a strategic point of view to be overtly bearish in the market."