New Lows YTD in Chinese Stocks & Highs in Latin America Stocks/Bonds
Last night the China Shanghai CSI 300 index fell a bit more than 1.6%, taking out February lows and setting a new YTD low for the index. This is important since the global equity markets have a very high correlation to Chinese stocks.
Energy Stocks Are Starting to Flow
Energy stocks are looking lively today, with energy the best performing sector in the US and second best performing sector in Europe. The likely reason for the buoyant performance is a continued improvement in fundamentals. Inventory data released yesterday showed a steady decline in crude and refined product (ex-SPR) in the United States.
Pairs Trade: Bullish Energy Sector & Bearish Financial Sector
As of this writing, WTI crude oil is back above $65/barrel, closing in on the recent $66.33 high on January 26. While oil and US equities have been in a “wedge” formation where, hemmed in by the January 26 high and the February 90 low, crude oil has broken out from its wedge.
Bifurcated Energy Sector Performance Presents Opportunity
Year-to-date the energy sector is the worst performing sector in the developed markets. In the tables below, I highlight statistics from our Knowledge Leaders Selection Universe (KLSU) which captures the top 85% of market cap in the developed and emerging markets.
Bitcoin prices have corrected severely in the last 48 hours. The newsflow suggests investors have concerns about increased regulation in China and South Korea. No doubt these headlines have spooked investors, but I think there is something else at work.
Keeping a Close Eye On Momentum in the North American Equity Market
Over the last 20 days, the US equity is showing early signs of exhaustion, and momentum is beginning to weaken. In the following charts, we’ll highlight the various technical measures we calculate each day to illustrate the early turn in momentum. Our KLSU DM Americas Index represents the top 85% market-cap of the US and Canada.
Shifting Currents in the US Treasury Market
Employing basic bond math, we can decompose the US Treasury bond into two pieces: real rates and break-even inflation expectations. Because real rates (TIPS) and nominal rates (US Treasuries) are directly observable, break-even inflation is relatively easy to determine.
The Impossible Math of the Federal Reserve
The Federal Reserve officially signaled the beginning of its balance sheet run-off. At this point, that’s old news. But, today the Fed released the Z.1 Flow of Funds, which adds to the intrigue of the balance sheet run-off. Why?
Investing in Gold for RICs
For retail investors, there are a few vehicles for exposure to gold. The SPDR Gold ETF (GLD) and the iShares Gold ETF (IAU) are the biggest, lowest cost funds for retail investors. Below are charts of the GLD and the IAU, with price and USD volume overlay to illustrate the liquidity.
How to Play the Gold Break-Out in Fixed Income Markets
Today gold is trading over $1,305, for the first time since November 4, 2016. The breakdown in the USD Index last week was a good signal telegraphing the short-term breakout in gold. Gold is notoriously difficult to value, but we have found one relationship that seems to consistently work.
No Matter How You Slice It, the Crude Oil Market is Coming into Balance
As the title suggests, any way we slice the data, it appears that the crude oil market is coming into balance to a greater extent than is generally recognized. This has broad asset allocation implications.
Performance Trends Highlight Our Optimism on Foreign Stocks
Equity allocators should take note that performance trends in North America are deteriorating while they are picking up outside the US. In the table below, I show the recent performance of the sectors within our KLSU North America index...
Risk Management 101: Diversification (Easier Said Than Done)
The essence of diversification is choosing assets that are not perfectly correlated with each other. The logic is simple enough: when one asset zigs, another zags. Years ago, finance scholars proved that a portfolio of securities is less risky than an individual holding and the idea of diversification as a risk management tool was born.
Is the Bond Market Signaling a Change in Course for the Federal Reserve?
A recent run of weaker economic data, highlighted by the Citigroup Economic Surprise Index (CESI) plunging to -32 from 58 in mid-March has caught the attention of the US Treasury bond market.
Coming Challenges to US Treasury Investing
In the table below we show the aggregate US Treasury maturity schedule. Due to stops and starts of the US Treasury issuing longer dated bonds over the last few decades, there is a huge gap in maturities available for investors.
It’s a Gusher So Far
So far in this earnings season, with over half of companies having reported, the energy sector has experienced the biggest earnings surprise. Earnings have come in almost 23% ahead of analyst estimates, nearly double the surprise of the consumer discretionary sector.
Moore’s Law: Knowledge Economy Firmly on Track
Last week, Intel executives took the stage in San Francisco to report to an audience of analysts, investors and media that Moore’s Law is alive and well. What does this have to do with our investment process and the Knowledge Effect? Everything.
Characteristics of Capital Preservation: A Look at the US Energy Sector
In a market experiencing the largest pullback since the election, investors are rightly looking for places to hide. At present, according to our work, the US energy sector is the only truly oversold sector.
A Massive Liquidity Illusion
Since the election we’ve heard the rally in stocks characterized as a “Trump Trade” or a “reflation” trade. We think there is a really important element missing from this analysis that could change very quickly over the next several weeks.