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TPW Advisory Friday Musings: The Song Remains The Same

09/04/2021
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China Commodities Estratégia Global Europa Fintech Macro Internacional

As we enter Q2 one considers the recent past and peers into the near future. Markets have pricked asset bubbles whether in stocks or bonds – the Archegos affair is just the icing on the cake. The result: all time highs in stocks, VIX under 20 and the worst quarter for long term UST in decades – no surprise here.

Now we come to the testing time of higher inflation prints – beginning today with US and China PPI over 4% y/y… soon we will see US headline inflation numbers with similar readings – we expect this to be transitory and for the market to handle it the same way as it has… thus the title – The Song Remains The Same.

We had our monthly model portfolio review and I want share a couple of interesting points. first, roughly half the positions are up less than 10% over the past 15 months ( 12/31/19) vs ACWI up 20% suggesting some good upside potential. Second, a scenario where the UST rallies in coming months, back to perhaps 1.5% or below with an attendant Nasdaq led equity melt up is feasible; given our heavy Value tilt I wanted to see if the thematic slice, itself roughly 20% of the portfolio will hedge against such a melt up. Finally it was a real struggle to find room to add two new names to the portfolio – a high class problem.

Peering into the near future expect US inflation bump to be transitory, US job gains to hit 1M+ per month ( still 11M short), re openings to continue and the Biden Jobs Plan to pass a la the Rescue Plan ( both very popular). The US recovery is baked in, China too – watch Europe – headlines are bad but stock market performance is good. On the thematic side watch for Carbon to be a big part of the upcoming Climate Summit.

Bottom line: risk asset risk reward seems appealing given positive seasonals ahead and bubble pricking behind.

Jay Pelosky

Jay Pelosky
Estrategista Global - TPW Advisory
Nova York, EUA

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