* Lust for Yield
83% of global equity market cap is currently supported by ZIRP, 52% of all global government bonds yield less than 1%, there is now $7.3 trillion of negativelyyielding government debt in the Eurozone, Switzerland & Japan, and 1.4 billion
people are experiencing negative real interest rates around the world. No wonder there is a lust for yield. In Q1 it is the turn of REITs to be the asset class attracting large speculative inflows in search of Yield & Growth.
* Wall Street’s Existential Crisis
We are bullish volatility. Market “tremors” are getting stronger (“flash crash” in US Treasuries, collapse in oil, 20% intraday move in Swiss franc). Investors fret regulatory backdrop will exacerbate liquidity & volatility. Investors increasingly questioning “how to invest”, how to construct portfolios in the coming years in a backdrop of weak growth, zero/negative interest rates and richly-valued equities. Owning volatility is one solution. Last time Gold & Dollar outperformed together was Q3’2011 (Greece, US debt downgrade). They are doing it again in Q1.
* Buy Signals versus “Bye-Bye” Signals
Our trading rules say market oversold and risk trades higher short-term through ECB. But investors fear event risks in credit, EPS & following the ECB. Should financial stresses grow, or US growth stumble, or Europe fail to respond to lower
oil/currency/rates, a large risk off asset allocation would be likely in the next 2 months. Watch bank stocks for stress, inflation expectations in Europe for ECB success/failure, small cap consumer discretionary stocks for US macro.
* Happy Workers, Sad Brokers...Happy European, Sad Americans
Oil will work to boost growth. It normally does (Chart 1). Long Main Street, short Wall Street remains a core position. Once activity shows a global pulse, EU asset trends most likely to reverse: French yields are at 270-year lows; Eurozone stocks at 50-year lows vs the US; and UK stocks now at 40-year lows vs the US.