Cumulative flow into ETFs as a % of AUM as of AUG 5th
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...but is Beyond showing signs of life?
Mother of catch up trades in the making?
Only two large asset classes (US HY Credit & Leveraged Loans) offer yields above 5% -- all others are at the sector or single-country EM level
QE is not generating "much" GDP but certainly has delivered a lot of joy for the top 1%.
WSJ article worth a read over the weekend,
Cross-asset correlations have dropped from record-high level to their long-term average, despite extraordinary central bank liquidity
Average 3M rolling correlation amongst 40 FICC & Equity markets vs annual growth in central bank balance sheets. Grey bars indicate recessions.
Nothing else matters...
Stretch marks leading to skid marks.....
GS Sentiment Indicator measures stock positioning across retail, institutional, and foreign investors versus the past 12 months. Readingsbelow -1.0or above +1.0 indicate extreme positions that are significant in predicting future returns
Based on history, post-recession, asset prices typically rise alongside the PMI advance and can continue appreciating if PMIs stabilize at high levels. Thanks to the sharp V this time we have almost taken all of the "price" potential but we need to live with a "bull" for almost 2 more years...
Sell vol?
Chart: Performance of portfolio of Equities, Credit & Commodities two years before and after low in PMIs at end of recession. Indexed to 100 at PMI trough.
55% of SXXP companies have decreased their dividend in 1H 2020 versus 1H 2019
Dividend payments have fallen 40% in 1H 2020 versus 1H 2019
Deals are back and Merger Mondays are a thing again. This first week of August we saw +$50B in deal announcements ($37B in trade-able US deal spreads) from the likes of VAR/SHL, LVGO/TDOC and GLIB/LBRD. We almost had a nearly $100B deal weekend (had TikTok come thru). This is nice follow up to a July month that opened the second half strong – 10 new deal spreads opened in the July month across $34B in deal cap
MS special sits desk
Key Defensives show P/E cheapness, even fully using 2021 EPS projections
Defensives have closely followed the movements in bond yields over the past 20 year.....but a gap has opened most recently...M
Chart: MSCI World Healthcare, Staples and Utilities relative and bond yields
The upcoming crash in higher education (at least the on-campus way...)
Prof Galloway: "The first domino falls--20% of Harvard freshmen defer. If the best brand in higher ed loses 20%, what will other schools lose? Fall accelerates the (overdue) reckoning for the University Industrial Complex"
Scott Galloway
Remember though; 2020 is a write-off so it does not matter - if it is not positive earnings revisions because then we can use it to buy more equities.....
TME prediction: this "positive" earnings momentum will not end until consensus has at least Q4 actually having positive YoY growth
Kostin: "Given better-than-expected results, we lift our 2020 S&P 500 EPS estimate from $115 to $130 (-21% growth vs. 2019). Of the $15 increase, $11 reflects better 2Q earnings results. On a quarterly basis, we now expect year/year S&P 500 EPS growth of -20% in 3Q (vs. -30% previously) and -14% in 4Q (vs. -17% previously). Our estimates compare with consensus forecasts of -23% and -14%"
Cross-asset returns YTD
Robin Brooks: "This weekend is the 2-year anniversary of Turkey's 2018 sudden stop. Back in 2018, Lira fell Friday, Aug. 10, bottoming Monday, Aug. 13. Our anchor, then as now, is fair value. It was $/TRY 5.50 then & argued against Lira overshooting. It is $/TRY 7.50 now & the same holds true"
QE is not generating "much" GDP but certainly has delivered a lot of joy for the top 1%.
VIX drifting lower while VXN pushing higher recently. If things go properly "dynamic", big books will need to hedge big positions, and for that purpose, only VIX can help you.
VIX looks relatively "cheap" here...
We have been arguing for VXEEM to "must" trade above VIX recently. This is occurring today for the first time in a while.
We see EM volatility as too low relatively speaking despite the recent uptick.
Watch your EEM here as it approaches the 21 day moving as well as the longer term trend. Note how the entire EEM bull started when the DXY reversed (inverted).
The DXY is one thing, but EEM also got the Trump news regarding Asian tech companies going today.
1, Europe is much more exposed to Turkey than the US, especially Germany has a large relative exposure.
2, EM "feeds on" cheap USD liquidity and currently more USD are being withdrawn from US Treasury than printed by Fed (via Nordea)
3, Turkey is a hue tourist country....and despite everything cheap again, the industry is dead.
4, As TME has been pointing out for the past week, European banks hold some Turkish exposure...people often talk Unicredit etc, but the main exposure is with BBVA
Euro vs TRY
Nothing new to TME readers, but BBVA is feeling the pain from Turkey via its stake in Garanti Bank. BBVA owns 2093700000 shares of Garanti, just below 50%.
Add to this the exposure in Spanish imploding economy (IBEX can't catch a bid) as well as big LatAm exposure, and you understand why BBVA remains our favourite way to play the Turkish situation.
BBVA vs TRY inverted
Recent action by Trump is spilling over to Asian tech with many tech names down big: SMIC -8%, ZTE -3.5%, Xiaomi -3.7%, Tencent -5.7%, Alibaba -3.5%.
Tech has been the main driver of the equities melt up, but tech is also sensitive to politics and regulation. Below is the chart of NASDAQ and the relatively new HK tech index (the index was just recently launched, but long history exists as the underlying component have traded on main markets before).
HSTECH has been much stronger than NASDAQ this year (second chart in percent).
It would be ironical if Trump derailed the tech bull just in time for the elections....
(cick arrow to change chart)
HSTECH vs NASDAQ
HSTECH vs NASDAQ percent
Full details,
...as it has led to corrections earlier this year
It seems it is never too late for this one....
Everybody has been cheering the great EU package, but equities continue trading with poor momentum. Eurostoxx 50 is not trading well, but more importantly, markets such as MIB and IBEX continue trading poorly, and these are the markets supposedly "bailed out" by the great package.
Note that SX5E "VIX", V2X, has moved higher recently, while VIX has been moving lower.
Watch this closely, as volatility tells the truth...
One thing is sure, not many like outs, which has been the right trade so far, but going forward things could be different.
Weekly put call ratio in crash mode...
One of our summer ideas has been for volatility to drift lower and eventually reach "good" levels where interesting long vol trades can be set up for what we believe will be a highly "dynamic" autumn session.
Post the most recent expiration, dealers have become long gamma and moves are getting tighter, just in time for vacations. We expect this dynamic to continue for longer, eventually leading long gamma crowd to decide puking vols. This is getting closer and closer. Ideally, we would need the VIX guy proclaim VIX is dead...for us to get really triggered.
(click arrow on chart to see SPY gamma)
CDX IG vs VIX
we trade close to max long gamma
Mike Mayo outlining his bullish call on banks;
“We think that bank stocks have the potential to increase by 50% over the next 18 to 24 months,”
If this happens, Berkshire should be a winner. The recent surge in Apple has practically brought BRK to being a "tech specialist". If you add a possible surge in banks, Buffett surely looks in a good position.
Mayo also says;
"“Banks are experiencing four 100-year events at the same time. The decline in the net interest margin, the worst in 100 years. The decline in traditional banking revenues, the worst in 100 years. The decline in total revenues, the worst in 100 years, and the build up of reverses has been the highest in history,”
Full Mayo interview via CNBC,
BRK vs BKX
We would need a confirmation candle as always. Volumes are absolutely impressive during this parabolic move...and the RH crowd is adding to this winner.
(click arrow on chart to toggle).
As we noted yesterday, the stock trades some 45% above the 200 day moving average. BofA outlined a few great risk points earlier today (see feed).
Yes, the story of Apple is great, but there are risks of course.
Apple volatility remains elevated, and for the "must be long Apple stock"crowd, overwriting calls makes good sense here (Apple is JPM's top overwriting candidate at the moment).
3 months 105 calls offers some 4% premium.
(click arrow on chart for scenario analysis of short 460 October call)
VXAPL remains elevated.
Negative yielding debt on the rise, but still not at new ATHs. Maybe gold is front running the pile of negative yielding debt, but as BofA notes,
"...it is more difficult for nominal yields to decline from here, so inflation and inflation expectations would have to increase to put further pressure on real yields.".
Watching 5 year break evens closely....
Nothing new, but gold loves falling real rates (over past years most of the "heavy lifting" has been due to nominal yields falling hard).
The Swiss national bank even added to already longs according to the latest report from March 30. SNBN is listed, but volumes are extremely small...on the other hand remember the mania in SNBN in 2017 when the stock tripled in a few months.
click arrow on chart to see top holdings...MSFT 28.4m shares, Apple 17..3 mill shares etc.
SNBN vs Apple
Top holdings according to latest filings
Parabolic moves often end in tears, but this time is maybe different?
Every hedgie once again wishes they were RH...
Yes, Apple has its own "VIX". You can't trade it, but shows how vol Apple VIX remains elevated post the report.
Apple vs VXAPL
It is not the "real fear factor", but shows how expensive downside protection is relatively speaking.
