Macro Dragon: Pockets of Value Starting to Show...

2020-Mar-18

Macro Dragon: Pockets of value starting to show...

Top of Mind…

• Folks given the tunnel of turbulence that we are currently going through – the Macro Dragon may be a touch volatile on when it goes out – as KVP is spending many late nights in Asia on the US markets & speaking with our VIP clients. As always feel free to reach out directly anytime during these multi-generational times

• Don’t hesitate to reach out to our Global Sales trading desk & ask to be connected to our members from our excellent SaxoStrats team (Eleanor on Australia & China, Peter G on Global Equities, John on Currencies + US Elections, Ole on Commodities & of course Jakobsen on Global Macro & asset allocation) – this is the part of the cycle where our skillsets, experience, drive & passion for the markets & investing become priceless. The maximum value is in the dialogue, so once again, don’t hesitate to reach out, we are here for you & we will be talking with a lot of you both through the storm & out of it 

• KVP has been spending hours speaking to our different VIP segments, from family office to hedge fund manager, to long-term investors to tactical traders – and these are +30min to +2hr conversations… the caveat being, what we are experiencing right now is multi-generational in nature & tends to happen in just a few business cycles

• However you know the Macro Dragon motto – there are always opportunities… & the more challenging the circumstances… the bigger the potential opportunities, be they in the liquid or illiquid markets. Please keep the dialogue & exchange of information coming, would love to see what people are finding compelling, looking for, etc… whether its 8% div yield on tobacco focused Altria or student housing block investment outside of Cambridge in the UK or silver/palladium miners given the collapse in prices there

• Cannot stress this enough, keep your mind open… we tend to see, what we want to see. If your mind is clouded with fear & panic  – which is understandable & part of the emotions we face on our pathway to wealth preservation & growth – take a step back, get off the desk for a day or two or a wk. Life goes on, this too shall pass… keep context in mind. Context is everything 

• Yes the S&P futures are down -25% YTD, but they have had a c. +400% run from the bottom of the GFC to all time highs this year. Yes Facebook i[FB] s down c. 30% YTD, yet it was up almost +500% since listing in 2012. Yes Exxon Mobil [XOM] is down c. -50% YTD given the perfect storm for oil (a la Chess grandmaster Putin), yet this is not Exxon’s first rodeo… they survived through the oil crash of 2014-2015, GFC, etc… its yielding c. 10%, even if that gets shaved, in a world where yields are getting structurally lower (remember KVP saying in Jan “One cannot own enough US duration) we will soon return to a thirst of yield like never before. Two-three years from now… people will be dying for yield. UST are yield 1%, the S&P is indicated yield is +2.2% - again even with part of that shaved off, you have the possibility of getting a better yield than bonds, for blue chip companies with experienced & strong management teams, great balance sheets & cashflow generations

• By no means is this a call for the bottom (VIX hand is still 76 & vol of vol is still around ATHs) – that’s the paragon of arrogance in the markets & arrogance gets you blown up – yet KVP feels we are starting to see pockets of value in some asset classes that does suggest that the floor is likely not much further for some securities. KVP would be doing the works on best of breed blue chip yielding baskets (equity & credit) & keep in mind its also a positioning & allocation decision. Both of which should be a function of time (i.e. think time diversification, as the bottom only known in hindsight), as well as magnitude & significance of level. For instance c. 2000 on the S&P is a c. -50% Fibo retracement lvl, that’s a massive technical level! Now that’s a stunning -20% from here (from the current -25% YTD), yet it starts to indicate that we are approaching a floor. 

• To put it different, if Altria which yields 8% & is down -20% YTD (nice +4% uplift in yest solid US equity session & big move higher in yields by the way) goes down -50% from here… it likely means than the rest of the broader market is down -60% from here. Is that possible of course, but imho the probability is not high 

• Please also see the mail KVP forwarded last night from our CIO & Global Head of Strategy, Steen Jakobsen – which includes few must reads from the excellent Saxo Strats team, that are around looking for signs of a bottom & value – these are must reads imho, so please make the time. Now more than ever, your time allocation is the epitome of priceless & here is a hint… its not in starting at the screens all day. Read, synthesize, reflect, scenario plan & put the plan into action 

Some other things to potentially expect this week…

• More focus on potential & bigger fiscal stimulus packages globally, as well as potential prototype vaccines, continued number count ticking up in US & EU… as well as the proverbial question – are we close to the bottom, is this puppy done or more to come?

• Further signs of stabilization across asset classes & less distressed / liquidity driven price action (i.e. swings that just don’t seem to have any rationale or fundamentals sense)

• What the market is likely not paying too much attention to… US/CH relations turning into Frosty the snowman… Conflict in MENA… US elections… FOMC meeting is likely to also be a wash… unless of course they take a page from the BoJ & SNB to start buying equities… Trump would not mind that one bit. To those that scream they don’t have the authority, let KVP tell you something about rules – they stay in place until they don’t… history is littered with rules & regulations being re-written by policy makers for when it suits them. Anything is possible folks. Keep your minds open, the opportunities will come

• Tactically… think we could also get some big upward squeezes in commodities, especially oil & metals which have in many cases gotten all-time records in being hosed. KVP can easily envisage a +5% to +10% day in oil… so imagine what some of these energy names that are down -70% could do. This would again be purely mean-reversion play (asset classes are generally still acting as stressed in KVP’s view), yet likely part of the path to eventual stabilization & fundamentals/rationality returning, fear/liquidation dissipating, etc..

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Good luck to everyone out there, be nimble & position accordingly. Stay health & safe

Keep your mind open to opportunities   


Namaste,

KVP