Meeting of Minds – November 2017

Published on: November 28th, 2017

In the spirit of his ‘3Ds’ headwind/tailwind approach, Raoul identifies headwinds for China and tailwinds for India and highlights some especially encouraging market developments in the latter. Julian examines how the flow of central bank liquidity has dominated price discovery in 2017 and provides a roadmap to a changing backdrop in 2018.

Comments

  • DL
    David L.
    4 December 2017 @ 07:07
    Raoul, I have always placed my capital with investments in North America. You have opened my mind to research and consider India. Is there an ETF I can take advantage of when there are pullbacks in the Indian market? Any info or direction is much appreciated.
    • GS
      George S.
      4 December 2017 @ 18:42
      Most major ETF providers have India coverage.
    • EC
      Edward C.
      9 December 2017 @ 23:46
      EPI or INDA are probably your best picks David. However they are borad based holdings, so difficult if you wanted specific sector exposure. There are some DRs list in the US also. HDFC Bank for example has a US listing. However, that name trades at premium locally (Foreign room has been exhausted) and the DR again trades at a further premium to this. Cheers
  • KR
    Kieran R.
    6 December 2017 @ 01:05
    Julian this is one of your best pieces yet - outlined many of the dynamics at play well. A few questions: 1. You lay out the case for a higher USD - is this not in itself deflationary and a downward force on US yields? 2. In terms of the stock and flow of CB purchases: you mention a reduction in CB purchases and balance sheet unwind could reduce liquidity and raise yields. Back in 2000 the supply of US Treasuries was much lower than it is now and despite treasury repurchases yields peaked at more than 6.7%. Similarly in 2013 after initially rising more than 100bps after the mention of 'tapering' we hit new lows at 1.35% on the 10 year last year - are the structural factors more important in the end in determining yields than central bank machinations? 3. Doesn't central bank tightening usually precede economic slowdown, which eventually leads to lower yields? 4. You characterise the current yield curve flattening as a bull curve flattening as investors are pushed out further on the curve. Could it not just be the market already pricing lower growth and inflation on the back of expected central bank tightening? 5. You mention displacement and how investors have been pushed into high yield and equities. When these markets start to experience stresses could they not perhaps come back into the bond market and cap out yields? I realise my questions may be coming from a longer term time horizon point of view and you are perhaps discussing more imminent risks in rates Cheers
  • JJ
    Josh J.
    30 November 2017 @ 05:34
    @Raul, @Julian - On a side note, for the upcoming 'Insider Talks' or in inline comments here, it would be great to capture your opinions on projections on how to trade Bitcoin and Alt. coins and the upcoming Bitcoin futures contract. Specifically, do you project will the non-commercials will likely go long or short on the front month bitcoin futures contact? Do you have thoughts on going long or short or a calendar spread. Thank you.
    • RO
      Rory O.
      4 December 2017 @ 22:06
  • JJ
    J J.
    30 November 2017 @ 04:29
    Raoul, could you please elaborate on the problem of "one belt, one road"?
  • RI
    R I.
    30 November 2017 @ 03:21
    All I can say is that it will be interesting to see how Macro Insiders (the product) fares come July 2018.
  • jm
    joeri m.
    29 November 2017 @ 18:23
    Julian describes the flattening of the yield curve as a bull flattener. However, in the RV distillery from 15 november the current situation was described as a bear flattener: "This time, though, it’s a bear flattener, with front-end yields rising as the Fed hikes, whilst long-end yields have failed to push on. Bear flattening is the broad-based dynamic that has preceded previous recessions since 1980." Can someone explain? Thanks
  • TJ
    Tyler J.
    28 November 2017 @ 23:00
    Can a US individual buy Indian stocks?
    • DP
      Devraj P.
      29 November 2017 @ 05:27
      Many companies have an ADR - http://topforeignstocks.com/foreign-adrs-list/the-full-list-of-indian-adrs/
  • B
    Bob .
    29 November 2017 @ 05:06
    2018 should be interesting for many reasons. I suspect that some are awaiting January to lock in their winners and postpone the capital gains payment until 2019 so January may be "active". What we need is the ability to get true price discovery so we can rid ourselves of the zombies. One would hope in the next downturn that the Fed allows the economy to endure the pain and actually clear. Somehow I doubt they will and that is too bad. Thanks for another very comprehensive piece. As a side note, I appreciated your earlier excellent work on India. I am enjoying the ride and I view it as a 5+ year opportunity.
  • JJ
    Josh J.
    29 November 2017 @ 01:34
    V insightful. @Raul - If possible, can you share a potential trade setup (which instruments, time horizon, ballpark target and potential stop loss) for investments in India? Based on @Julian's writing on potential USD strength, and bearish EMs, do you think this is already priced in? It would be beneficial to gain perspective on how to reconcile investing in India (EM) and USD strength. Thanks.