Monday, July 06, 2020
Please
find below our latest Weekly Trend Update Report covering major
asset classes and currencies.
Our
apologies for the irregularity of comments last week caused by our server’s
problems (which we think and hope are resolved).
Have
a nice week.
Marc
Bentin
Bentinpartner GmbH
Trend
Status Update
For a more complete explanation of where we we stand, we recommend
listening to last week’s 30’ Bloomberg
interview from Ray Dalio where he said that we are now facing three major
risks;
- the mature state of a long-term debt cycle
similar to the one encountered in the 30’s, 1945 and 1971 (which all led to
currency devaluations of their own).
- an historic wealth gap leading to the rise to a “value”
(serial bubbles fed by central banks) and “political” gaps (from electing populist
leaders).
- the rise of a great power challenging the
existing one (leading to trade, cold and sometimes hot wars).
In this interview, he also said that free markets have ceased to preside
the allocation of capital as central banks de facto became the new market
makers. When asked about the “limit” of this state of affairs, he said that
there is none (in sight), that central banks’ balance sheets are set to (further)
explode with no limiting factor, beyond a currency implosion. On that topic, he
made a point that we made earlier (in all humility) debunking the “big dollar
short” argument resulting from the foreign stock of USD labelled debt (which
only needs to be defaulted on to disappear…).
He opined that equity markets’ PE could rise as high as 50 (just to give
a number) and that this metric should not be used as a point of reference in
the traditional sense anymore.
From an investment perspective, he repeated that the only valid “reflation
trades” are primarily equities and gold, not cash or bonds that are essentially
taxed to the tune of a large negative real interest rate.
Also worth listening to was N. Roubini’s interview (dubbed “perma bear” for a reason) from two
weeks ago. The major take away there was that the
world economy is facing a supply shock from deglobalisation and productivity losses
coming from the separation of the internet, 5G and technological standards
between the US and China. The investment conclusion was the same that the time
has come to protect oneself from inflation of goods, assets and ultimately a looming
currency crisis.
Lat week, the S&P500 gained 1,6% (-3,0% YTD) while the Nasdaq100
rallied 2,5% (18,6% YTD). The US small cap index gained 1,4% (-14,0% YTD).
Tech remained market leaders amidst a resurgence of Covid
19 cases in the US and around the world. AAPL dropped -0,2% (24,0%). FB dropped -1,0% (13,7%). LYFT sold off by
-4,1% (-26,0%). AMZN
rallied 4,9% (56,4%, Z-score 2,1). NFLX rallied 2,4% (47,4%). GOOG gained
1,6% (9,5%). MSFT rallied 3,0% (30,8%). INTC gained 1,1% (-1,2%).
CBOE Volatility Index sold off by -14,1% (100,9% YTD) to 27,68.
The Eurostoxx50 added strong gains last week, gaining 2,9% (-10,4%),
outperforming the S&P500 by 1,3%. European markets were supported by a
solidifying support in Germany for more fiscal stimulus and the vote on
Thursday closing the controversy on the Constitutional Court Ruling that had
deemed the ECB asset purchase program unconstitutional and against the statutes
of the ECB.
Diversified EM equities
(VWO) rallied 2,6% (-7,6%, Z-score 2,1), outperforming the S&P500 by 1,1%, mainly led
by Chinese markets which reacted positively to the golden cross formation that was
comforted by surprisingly strong Chinese data later last week. With this latest
burst, Chinese stocks took the lead on the score card for the year, at the same time as it broke technical key
resistance levels on Friday. CSI300
Chinese equity index (ASHR) rallied 6,3% (5,1%, Z-score 2,8) for the
week.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7
currencies dropped -0,1% (1,2%) while the MSCI EM currency index (measuring the
performance of EM currencies vs. the USD) gained 0,4% (-4,1%). USDRUB rallied 2,3% (15,2%, Z-score 2,0) last week despite a
further rally in oil prices and risk appetite with RUB adversely hit by
seasonal weakness as Russian companies sold RUB to pay for dividends (according
to a JPM report). RUB may still be slightly over-owned as a convenient “carry
trade” but remains fundamentally (and grossly) undervalued. We are reinstating
the RUB overweight closed last week in our paper model FX overlay. The USD
traded erratically vs. G7 counterparts and remained in a trading range (with
downside potential in our view). There is no real FX safe haven anymore
(besides CHF to a point) as FX volatility increases and we remained
underweighted JPY (in what remains largely a contrarian trade).
10Y US Treasuries dropped 3bps (-125bps) to 0,67%. 10Y Bunds climbed
5bps (-25bps) to -0,43%. 10Y Italian BTPs dropped -4bps (-16bps) to 1,26%,
underperforming Bunds by 4bps.
US High Yield (HY) Average Spread over Treasuries dropped -5bps (264bps)
to 6,00%. US Investment Grade Average OAS dropped -10bps (47bps) to 1,48%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -9bps
(24bps) to 0,76%.
Gold was unchanged on the week (16,8%) while Silver further played
further catch up, adding 1,2% (0,9%). Major Gold Mines (GDX) rallied 3,5%
(23,5%).
Goldman Sachs Commodity Index rallied 3,9% (-30,7%). WTI Crude rallied
4,8% (-34,0%). Despite all the (now convenient) talks about deflation,
technically at least, the floor could be in sight for commodities in general.
Most cyclical up-moves in commodities have in the past started with Gold, then
followed by silver (which has recently turned the corner vs. gold as suggested
by the gold/silver ratio). Even copper which has recovered 36% from its lows is
supported by revival expectations in China.
Overnight…
Nikkei +1.2%; CSI300 +3.3%;
S&P500 future +37 points
Trend Score Card
Click here for
technical terminology.
US
& International Equities
Check out US and International Stocks’ Technical
Trend Status.
Sector
Trend & Momentum
Check equity sectors’ trend and performance …and when
they break out!
Fixed
Income
Check out 10Y US Treasury and Bund yields, their
trend, expected Fed rate moves and speculative positioning in 10-year Treasury
Futures.
US
Recession Risk Radar
A comprehensive list of
economic indicators to compare the current situation with previous recessions.
The
Dollar
Check out where the Dollar stands Trendwise and Breakoutwise vs.
G7 and EM counterparts.
Get the Score card of all major currency pairs in terms
of Trend, Momentum, Carry, GDP and Current account differential
Precious Metals
Check out where precious
metals stand Trendwise
and Breakoutwise.
Get a sense of options (cumulative open interests on calls and puts) and
futures traders’ sentiment (non-commercials open positions).
Check out how precious metals, the dollar and the
Stock market correlate with each other and speculative futures positioning
on Gold and the Dollar.
Why Trend Following Matters and How It Can Help
You?
A disciplined and rule-based
trend following investment approach can serve as an effective portfolio
insurance technique.
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Our Portfolio Management and Advisory Services
BentinPartner GmbH is a
Swiss registered independent financial adviser. We offer four different
portfolio management mandates:
- The “Global
Strategic” (GS) mandate invests your portfolio according to an
optimized strategic benchmark. This allocation delivers the “beta” (or markets
related) performance of your portfolio while we seek to generate additional
“alpha” (“skills related) performance with tactical adjustments, using a
predefined maximum “value at risk” envelope. Most of the portfolio’s
performance is derived from the strategic Benchmark (beta).
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invests your portfolio without tracking a strategic asset allocation (or
benchmark) and pursues a “total” as opposed to “relative” return objective.
With this mandate, we seek to beat the best of “cash” or of the MSCI World
Equity index, applying mostly tactical considerations,
using a
predefined maximum “value at risk” envelope and targeting not to exceed a
predetermined overall portfolio volatility.
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(TM) mandate, builds a diversified “All Weather” investment portfolio and
applies a rule-based Trend/Momentum methodology to adjust this “trend neutral”
allocation. We track trends across asset classes on a daily basis and adjust
your portfolio in a semi automatic (there is always a pilot in the plane)
fashion applying trend changes signals.
- The “Currency Overlay” (CO) mandate
seeks to generate “alpha” applying a currency overlay with a limited leverage (not
exceeding 100% of NAV). You control the portfolio allocation (which can be a
pool of cash, stocks, bonds or gold) and we manage in overlay the FX exposure
of your portfolio, seeking to add a total FX return of 4% to 7%.
For more information on our risk management and
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