1Q17: What to buy and sell


Tuesday, January 24, 2017 // Written by Enzio von Pfeil


What to go long of and what to short this quarter 

  1. Top 3 investment tips/themes (e.g. sell the yen, avoid oil)

-        Keep buying DEFENCE stocks: the Syrian peace talks will go nowhere

-        Even if good Economic Time® for EUROPE AND JAPAN: stay in liquid instruments!  Their “recoveries” are just not sustainable….

-        Short US multinationals with heavy exposure in the Chinese market

 

  1. Market outlook for 2017; key risks to watch out for

-        Generally: an IMPROVING ECONOMIC TIME®; however, market will over-rate the improvement èdangerous MARKET OVERSHOOT, so stay in liquid stocks

-        DOLLAR may not strengthen as much as all of us would like to think

-        Huge VOLATILITY provides plenty of trading risks, so stay in liquid instruments

-        Trump induces disruptive trade wars:à buy TRANSPORTERS on weakness

-        AVOID US MNCs with heavy China exposure

 

  1. Trump rally; is it over now? Impact on market sentiment

-        The market has a habit of discounting, so A LOT OF TRUMP HOPES ARE IN THE PRICE ALREADY

-        BUY THE US MARKET ON WEAKNESS: the Fed will keep tightening precisely because America’s Economic Time®  keeps improving!

-        SELL US MNCS with heavy exposure to the China market: this is where Trump’s childishness will elicit the greatest Chinese backlash/ wrath

 

  1. China outlook; potential trade wars and risks; PBOC policy; yuan now at 2-month high

-        OUTLOOK: Expect a WORSENING ECONOMIC TIME®: RMB support means that money supply/ liquidity tightens. Not good for markets.

-        POTENTIAL TRADE WARS: expect bush fires, not all-out wars. Trump is a wimp, witness his heroic response to “there’s a gun” warning…

-        RISKS: Trump will beat-up on China:

  1. Trump will accuse China of manipulating her currency; thus, China will take him up on the offer and let the currency float totally, i.e. plunge;
  2. Trump will beat-up on China’s companies  in his flippant, juvenile &  visceral manner, so China will take it out on US MNCs operating within China

 

  1. Further clarity on Brexit gained over Davos Week - what's your take?

-        PM Maybe now trying to sell the idea in ads that the EU needs Britain and Britain needs the EU; however, the EU will drive its own hard bargain.

-        I regard Britain’s departure as the lesser issue: it will be dictated to by the EU

-        However, Britain’s departure has set an overall ANTI-EU MOVEMENT that culminated in this Sunday’s meeting of right-wing parties in Koblenz, Germany…

  

  1. Anything you would like to bring up?

-        The INFLATION STORY not thought-through!

  1. COST-PUSH INFLATION > DEMAND-PULL INFLATION

1.     GLOBALISATION disallows huge wage increases, as the supply curve is infinite

-        US Long-germ government   BOND YIELDS WILL FALL

  1. With so much excess liquidity swirling about, it will keep looking for a secure home. US dollar government bonds offer such a home, i.e. they will be bought
  2. This means that the yield curve must flatten: higher Fed Funds, lower bond yields è flatter yield curve

-        SHORT BANKING STOCKS

  1. If the argument has been to buy them due to a steeper yield curve, short them now: the .3
  2. , thus reducing margins on lending
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