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Entries in China (7)

Tuesday
Jan132015

Too Many Cheerleaders?

After doing away with the extremes in my recent post, and advocating a continuing constructive market stance based on country and sector rotation, I thought that I needed to put a face on the anti-thesis of Hussman whom I, perhaps unfairly, stung a little bit. You will not find a more hardened advocate for the bull market than Jeffries' David Zervos and his (in)famous Spoos and Blues call, recently re-wamped into a Spoos and Qs variant. In one of his latest missive, he notes; 

With all that said, I feel just fine about our Spoos and Q’s call for 2014. Adding that to the trophy shelf with Spoos and Chartreuse, Spoos and Blues, Spoos and Duu's and Spoos and 2s feels pretty sweet! So, let's move on to 2015? Is it still a Spoos and Q’s world? Maybe, but there are probably better trades for this year. I suspect we have to pass the QE playbook, and the “No Hater” hats over to Europe. I outlined this idea back on 5-Dec-2014 in a commentary entitled BTDD. Here, once again, is the logic behind moving from a Spoos and Q’s world to what I would like to think of for 2015 as a "Dax and Dollars" world. 

Is this what is called resting on one's laurels? The notable difference between Zervos and the bears, though, is that the former has been right for so long that even a cynic like me would afford him a victory lap. But could it really be that easy, forever? 

Equities have been trading on a background of persistently higher volatility. This is consistent with uncertainty surrounding the timing and nature of Fed policy this year as well as the collapse in global energy and commodity prices. On the latter, it seems to me that we are balanced on a knife's edge between Albert Edward's version of the world where deflation crushes all things risk asset related, and a world in which the huge tax cut to consumers and non-energy producers, and the associated delay of rate hikes, sends the market into the stratosphere. Having recently alienated myself from extremes, I still think that the S&P 500 can do absolutely nothing for a year, even as other markets offer significant opportunities, but it will be a bumpy ride. 

Using my own private random news generator, however, the report (in Danish!) that retail investors in Denmark are warming to the stock market in record fashion, as well as the increasing fondness of Chinese retail investors for "penny stocks" indicate that the stock market euphoria is starting to spread. The market needs cheerleaders to move forward, but too of a good thing is just that. 

Portfolio notes:

One step forward, and one-and-a-half step back is pretty much the state of play at the moment. The key positions are doing alright, and earnings have been kind for now, but performance is underwhelming and risk is starting to feel too high for the reward. We still intend to build long-term EM positions further in coming months, but also plan to add to the gold allocation.