Monday, May 11, 2020

 

Dear Reader,

 

Please find below our latest Weekly Trend Update Report covering major asset classes and currencies.

Please not that we are introducing a revamped Chartbook report.

Have a good week.

 

Marc Bentin

Bentinpartner GmbH

 

Friday’s Snapshot

 

Global Chartbook PDF

 

 

 

FX Overlay Model

 

 

Global Tactical Model

 

 

 

Trend Following

 

       


 

Trend Status Update

 

Last week, the market remained pulled by tech and GAFAM. Friday illustrated the growing disconnect between equity markets (that keep rallying) and the induced “I” shaped economy still searching for a bottom. US unemployment came out at 14.7% (23% if discouraged and underemployed workers are considered). This was bad but not as bad as expected (the 19.5mn jobs were lost vs. 22mn expected). Average hourly increased by 4.7% (from 0.4% expected) but this “good” news was largely due to the fact that jobs that were lost in April were mostly lower wages (unemployment in leisure and hospitality increased to 40%).  Stocks rallied but bonds did not for a change, ahead of this week’s 46bn refinancing (in 3, 10 and 30 years) and the perspective of a USD4trn US deficit that has started to steepen the curve as well.

 

We do not know what kind of letter shaped recovery, the deconfinement will bring. What we do know is that things will not return to normal. They will return to a to a new normal, at best. People will be zooming, netflixing, hopefully walking, running, cycling, golfing maybe. They will most certainly go into a shopping spree (as a revenge against the confinement). But who is going to enjoy packed restaurants, planes or movie theatres? Most likely, way less people than before.

Transporting (not traveling) was already an unpleasant experience in many ways and things will only get worse. Take off your shoes, your belts, your liquids... add to that the risk of being taken aside for a cold...wearing a mask next to a sneezing fellow traveller and you’ll get a really unpleasant and stressful experience that you will want to avoid. Furthermore, who is going to want to return to floating cities for a cruise running the risk of staying trapped for days and weeks? Not all these floating cities will be turned into museums...and that is a good thing perhaps. After all, there were part of a big ecological disaster.

Still, industries centred on tourism, hospitality and leisure (accounting for 7.7mn job losses) are only supported at arms’ strength by governments and likely not forever.

 

That is probably why W. Buffet stunned investors early last week, saying he had turned tail on his four US airlines investments. This only plumbed the market for one day before investors decided that this also shall pass.

There will be positive consequences like less pollution, an acceleration of technological adoption but many job losses will turn permanent and things might not play out as smoothly in the end as markets are keen to believe (Goldman still believes lows will be revisited on the S&P500). Still, it took courage and fortitude that we have been missing to fight this bulldozer of a rally last, not least because it is also fuelled by hopes, expectations and rising odds of the Fed going negative (on rates) before the end of the year.  

This provided some comfort to succumb to the sirens of Tina last week… Fed Chair Powell will speak on Wednesday and will be scrutinized for his stance on negative interest rates which he has systematically so far rejected. 

If the Fed pursues to bail out everything that can go down (its balance sheet is set to treble from pre-corona outbreak) and if the US Treasury abandons any sense of fiscal restraint on expectations that all new debt will be monetized (a thinking gaining in popularity in certain countries of Europe as well), there is not one single chance that we are not heading into a currency crisis of some sort with serious inflation consequences down the road.

Germany will continue to play the adult in the room (see decision of the Constitution court last week questioning the legality of the different QE programs) and prevent excessive debt monetisation in Europe. But the Fed and Treasury are going all in (either because they naively believe the dollar is iron clad or because they do not mind dragging it down) and we think that the odds are now high that the dollar will go down fairly significantly in a not too distant future.

The best way to prepare is to hold large strategic overweighs on precious metals (in conjunction with tactical long equity positioning in Europe) held in gold and increasingly, in silver as well. We will never be able to buy a bitcoin…

The European court of justice recalled last week that the ECB is submitted to the European court of justice that supersedes the German court of justice and the French Finance Minister and BdF Governor vociferously reminded this last week. Still, if the German Court of Justice does not change its stance in three months, in theory the Bundesbank might be forced to stop buying German debt, leaving this mission to the BdF and other European central banks to buy negatively yielding German bonds...

So, the ECB has got some PR and convincing work to do, and politicians from de-complexed overindebted, ever-profligate and lecturing European nations as well. Otherwise, the sacred unity will be broken and in the worst case, infinitesimally small Gerxit probabilities could even resurface.

 

 

Over the past week, the S&P500 rallied 3,4% (-9,1% YTD) while the Nasdaq100 rallied 5,7% (5,8% YTD, Z-score 2,1). The US small cap index rallied 5,8% (-20,1% YTD).

Cboe Volatility Index sold off by -24,8% (103,0% YTD) to 27,98.

The Eurostoxx50 dropped -0,1% (-21,5%), underperforming the S&P500 by-3,5%.

Diversified EM equities (VWO) rallied 4,4% (-17,9%), outperforming the S&P500 by 1,0%.

 

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,8% (4,1%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,2% (-5,9%).

 

10Y US Treasuries underperformed with yields rising 6bps (-122bps) to 0,70%. 10Y Bunds climbed 5bps (-35bps) to -0,54%. 10Y Italian BTPs underperformed rising 8bps (43bps) to 1,85%.

US High Yield (HY) Average Spread over Treasuries dropped -20bps (389bps) to 7,25%. US Investment Grade Average OAS climbed 10bps (115bps, Z-score 2,3) to 2,16%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -3bps (53bps) to 1,05%.

 

Gold gained 0,3% (12,5%) while Silver rallied 5,3% (-12,9%). Major Gold Mines (GDX) rallied 4,7% (19,1%). The argumentation of the bull case for silver (in absolute and relative terms to its big brother gold) became more compelling and was presented convincingly in this ZH article. Gold is technically in bull trend and supported by solid fundamentals (the grandest global monetary experiment of all times, negative real rates, soaring deficits, stable gold production, strong central bank and soaring investment (etf) demand. However, a Gold/ silver ratio over 100 (120 now) has only been that high, going into historical recessions such as the invasion of Poland by the Nazis, the great depression, or the 2008 financial crisis. We might be at a similar juncture... but in each and every case, the gold/silver ratio ebbed back significantly from those peaks and stocks are not pricing an Armageddon scenario for now. The risk of an engineered and seasonal gold take-down of gold ahead of the futures settlement (to reduce or prevent delivery) remains a possibility…but it will be bought. Bitcoin rallied last Thursday after Paul Tudor Jones suggested it might keep pushing higher.

Goldman Sachs Commodity Index rallied 6,5% (-41,3%). WTI Crude rallied 17,7% (-60,7%).

 

Over the week end…

 

Nikkei +1.4%; CSI300 +0.4%; S&P500 future +10 points

 

Stocks climbed in Asia this morning, recouping some early losses in thin volumes.

 

The PBOC pledged more help to counter the virus impact in China. U.S. VP Mike Pence is self-isolating away from the White House after an aide tested positive.

 

Regional Federal Reserve Presidents J. Bullard, J.  Mester and P. Harker are due to speak at events on Tuesday.

 


Trend Score Card

 

 

 

 

Click here for technical annotations.

 

 

Trend Scorecard   

 

 


US & International Equities

Check out US and International Stocks’ Technical Trend Status.

 

 

Stocks   

 


Sector Trend & Momentum

Check equity sectors’ trend and performance …and when they break out!

 

Sector Analysis   

 

 


Fixed Income

Check out 10Y US Treasury and Bund yields, their trend, expected Fed rate moves and speculative positioning in 10-year Treasury Futures.

 

Fixed Income

 

 


US Recession Risk Radar

A comprehensive list of economic indicators to compare the current situation with previous recessions.

 

US Recession Risk Radar

 

 


The Dollar

Check out where the Dollar stands Trendwise and Breakoutwise vs. G7 and EM counterparts.

 

The Dollar

 

 


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).

 

Precious Metals

 

Check out how precious metals, the dollar and the Stock market correlate with each other and speculative futures positioning on Gold and the Dollar.

 

Gold vs. USD vs. SPX

 

 


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).

- The “Global Tactical” (GT) mandate 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.

- The “Trend/Momentum” (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 investment methodology, please check our web site.

 

We deliver transparent, professional, tailor-made, and competitive asset management services, seeking to fulfill our fiduciary duty at all times.

 


 

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