MarketsMuse.com update courtesy of extract from a.m. edition of “Sight Beyond Sight”, one of the most widely-followed industry newsletters courtesy of global macro strategy ‘think tank’ Rareview Macro LLC.
Today is About the Forest…Not a Tree
Market Watchers & Worker Bees
L/S Hedge Funds (Dumb Money) vs. Long Only Funds & Retail (Smart Money)
Model Portfolio Update – February 20, 2015 COB: -0.76% WTD, -0.32% MTD, -1.19% YTD
We return from our vacation re-energized and looking to provoke some strong emotions among the professional investment community.
If you are a long/short equity hedge fund this edition is going to bother you a lot. Why? Because you are NOT long European risk assets.
If you are a long-only equity manager this edition is going to make you even more confident. Why? Because you are long European risk assets.
Market Watchers & Worker Bees
The below two excerpts are from a sell-side bank morning note with many thousands of people on its distribution list. We are by no means intending to disparage this commentary, since, as it happens, we are quite fond of this institution and respect the group that works very hard to consistently produce this analysis each day.
- “Market update – more green. Eurozone stocks took a breather Wed but are back in the green so far Thurs. Asia was higher pretty much across the board w/only a few exceptions (Australia, Taiwan, and India all lagged while China outperformed). As far as news is concerned, there wasn’t a single overarching macro theme but instead many of the same issues (or really the absence of macro headwinds) are still influencing sentiment.”
- “Europe – the main indices are up small and trading (in equities) is relatively quiet. There were a slew of earnings out (see below for a full recap) but none are really shifting the broader narrative dramatically. As far as sectors are concerned, autos, basic resources, chemicals, banks, and energy are outperforming while staples, food/beverage, tech, insurance, media, and telecoms are lagging. Other than basic resources (which is up ~1.3%), no sector is up/down more than 1%.”
We have highlighted the above excerpts because this is a great example of what “market watchers” and the “worker bees” at investment firms default to first thing each morning in order to help gauge sentiment and understand the most important themes influencing asset prices.
Put another way, it is not commentary that people who actually take risk are focused on and misses the point.
The point is that when you read these excerpts and add them to the fact that equity volatility is back at the lower end of the range, largely on account of Greece returning to the back pages of the news, and that Federal Reserve Chairwoman Janet Yellen’s semi-annual testimony to the US Congress has now passed, the professional community is lacking something to debate and by extension, trade.
We could not disagree more. Risk takers are not looking for something to fill a void. In fact, there is NO void.
Our question is “why is no one honing in on the sentence within the sell-side bank note excerpt above that highlights how European cyclicals are outperforming?”
This is where we come in with our sight beyond sight.
The key takeaway today for risk takers are the developments that provide further evidence that the Eurozone credit cycle is turning UP.
The news flow today is why European cyclicals are outperforming and that is forcing risk takers to ask the question of whether they need to be adding length in higher beta markets (i.e. Spanish equities, Italian financials, etc.) and sectors geared towards basic resources (i.e. UK FTSE broke-out of 15-year range, etc.).
In the January 29th edition of Sight Beyond Sight we wrote: “If you do not care about the global rotation into European risk assets then do not read this section.” That holds true again today upon the same data release.
The European Central Bank (ECB) has issued its monthly PRESS RELEASE on Monetary Developments in the Euro Area for January 2015. Exactly as we said on January 29th when the December 2014 data was released, we STRONGLY encourage you to read it. It is important.
Again, you will not hear about this data in the news or see it on Bloomberg. That is because most people in this business either do not know where the pieces of this puzzle are, or are too lazy to do their homework and start putting them together. But the picture, once you take the time to assemble it, remains a fascinating one.
See the below three illustrations.
To continue reading the entire edition of Rareview Macro’s “Sight Beyond Sight”, please click here (subscription is required and Free Trial is available if you haven’t already figured out this newsletter is one of the best investments for those focused on ROI).