We are probably still in the sweet spot for the emerging market cycle. This doesn’t exempt us from the risk of corrections. It doesn’t eliminate geopolitical flare ups, trade war rhetoric, or the macro scare du jour. And it doesn’t make September/October calendar effects any less scary. But it does mean if you are an investor the wise choice is to stay in, stay the course.(Pro memoria: the dominant error in professional investing is over-forecasting corrections and then chasing bull markets from a position of weakness.)I’ve given the reasoning for this view here, here, and here. And my broader ..read more

I have a childhood friend who loves to rant and complain so much that I jokingly preface giving him good news with an apology. The market feels very much like this right now. The overwhelming sentiment is “cautious”, “we are due”, “valuations are unsustainably high”.But the truth is our collective memory of the GFC has made sentiment a countercyclical stabilizer, stretching out both the financial risk cycle and the economic cycle. Every time we get a little confident or frothy, the scolds come out and remind us of our ‘irresponsibility’ and we all slow our roll for a little while and digest ga ..read more

Credit managers have been suffering for years now. Yeah, I know that sounds strange given the run credit markets have had. But the truth is they’ve been suffering from sticker shock since 2011. “But what can I buy at these levels?” has been their constant refrain. Many have been underperforming their benchmarks and bogeys for years.How did they fall into this trap? Start with the chart of the BBB spread over the last 15 years. Credit managers have anchored on spread levels and yields from the strong phase of the last risk cycle, 2004-2007. Spreads then were 110-130bps. Today they are 138bps. F ..read more

The forward points on BRL and MXN show, approximately, a 6% breakeven depreciation over the next 12 months. Or, in other word, 6% carry. If you believe emerging markets are in the early phases of the same kind of slow, muddle-through recovery we have seen in the US and increasingly Europe, it is hard to imagine spot underperforming the forwards as a longer-term investment proposition. This is the phase of the global risk cycle where the desire for returns is very high but the forward-looking scope for returns in the US market appears limited.It also looks to me as though there ..read more

Up until recently oil stocks have been about playing/gaming some type of normalization from the 2014-15 crash. Mostly, repeated attempts at knife catching. Over this past month or two it seems investors are finally looking a little beyond this and starting to price in the secular challenges facing global oil supply & demand. 1.       Electric car dominance is no longer a question of “if”.2.       The fuel intensity of global growth continues to decline, as emerging economies catch up with the well-established trends in the advanced ones.3.       Extraction technologies have become vast ..read more

I’m trying something new. I’ve been looking for months for a better way to share my core competency: global macro investing and trading. My public twitter account and blog no longer reward my effort the way they did when I started tweeting, disincentivizing thoughtful output. And I’ve got tons to say about patterns, narratives, correlations, investor reaction functions, position sizing tricks, portfolio construction, managing mental capital, fundamentals, etc. I live for this game. So, I was pretty happy when I stumbled onto Premo, the brainchild of the folks at the Bespoke Investment Group. T ..read more

I know everyone likes EM. I know it has had a great run the last 18 months. I know the Fed is reducing its balance sheet.But consider this:1.       EM had a prolonged bear market, and large allocators are always slow to get back in after a cyclical bear. Expressing bullishness and acting on it can be very separate things.2.       The EM cyclical bull is on—albeit much in the same muddle-thru way we saw in the advanced economies. Expect ‘slower for longer’. It was a global credit boom, and we are experiencing a global, asynchronous, muddle-thru recovery.3.       This is not your father’s Emergi ..read more

The Great Financial Crisis shook a lot of trees and made many economists/investors/traders go back and question first principles—at least it should have. Here’s a quick list of Things We Should Have Learned by Now:1.       Potential growth in developed economies is lower than it was before the GFC. And policy can’t do as much about it—whatever your policy inclinations—as we’d like to think.  2.       The interest rate sensitivity of economic activity is far less than was believed to be the case.3.       Printing money can cause inflation, but doesn’t always. Asking what are the conditions unde ..read more

These are my views of where we are in markets right now:1.       The Fed is more committed to the abstract notion of normalization than the market, still, in the aggregate, gives it credit for.2.       We now know with very high likelihood that they want to start with the balance sheet reduction ASAP, and will, in the first instance, push hikes out further as need be to see how well it goes. 3.       Grinding global growth (by historical standards, not recent ones) is likely to continue as global demand continues to work its way out from under the Global Credit Boom. This means the ECB, BOJ, a ..read more

This is the last of the 3 parts to the recent Interview on Sirius XM Channel 111, Business Radio Powered by The Wharton School, with Jeremy Schwartz. I welcome the feedback/comments ..read more