The Great Beta Chase

Published on
September 20th, 2018
Topic
US Economy, Trading, ETF
Duration
14 minutes
Asset class
Equities

The Great Beta Chase

Trade Ideas ·
Featuring Michael Purves

Published on: September 20th, 2018 • Duration: 14 minutes • Asset Class: Equities • Topic: US Economy, Trading, ETF

Michael Purves, chief global strategist at Weeden & Co., sees a landscape in which fund managers haven’t kept up with the run-up in U.S. equities. In his view, they will continue to chase returns as the rally in the S&P 500 continues through the end of the year. He shares how to take advantage of the situation with Real Vision’s Justine Underhill. Filmed on September 17, 2018.

Comments

  • DR
    David R.
    20 September 2018 @ 18:14
    As I write this, EUR/USD and GBP/USD are both up 0.82% (dollar down .82%) and S&P500 is up 0.77%. So US stocks are going nowhere in real terms (ie, net of USD devaluation), actually US is slightly down. But Dax, Cac, EuroStoxx, are each up 1%. Thus international is solidly outperforming US equity again today, The big DIVERGENCE between US equity and International that US equity out-performance had created MUST close, either by US stocks going down or International Equities rising; perhaps it's the latter. Japan is looking good too. Anyway, it's clear that US stocks have lately been fueled largely by USD devaluation like has been the case during the dollars 5% drop over the past month. Not good, especially if you must pay the taxman for such non-existent gains in real terms. After-tax, real returns are the only thing that matter.
    • DR
      David R.
      20 September 2018 @ 21:03
      At the final bell 5pm EDT: EUR and GBP both closed up 0.9%, while S&P closed up 0.8%, so S&P had a -0.1% LOSS today from an international perspective.
  • JL
    Johnny L.
    20 September 2018 @ 14:53
    WS did not see the earnings misses in Q2 by the FANG+ names, KR, FDX and many others. Q1 Tech names also got clocked on unerring earnings surprises. WS is expecting companies to pre-announce but not of those who missed YTD did pre-announce. I suspect q3 earnings will see more of the same.
  • DR
    David R.
    20 September 2018 @ 11:12
    Basically agree, but one must be sure to hedge this trade's exposure to dollar weakness. USD has now cracked 93 today and should drop lots more eventually. The dollar has convincingly broken two key support levels and a big H&S, and now only an immediate close above 95.5 can invalidate USD bearishness. Everyone who bought dollars within the last 2-3 months is now sitting with a loss that's getting worse & worse. As 90% of specs are wrongly long USD, they'll be under increasing pressure to cover or bail, which will hammer USD as they do. You must avoid being long USD, directly or indirectly such as holding US securities, as the dollar decline is setting up to gather pace per the charts. On numerous days lately USD has fallen even more than S&P has risen. So in combo with long S&P, be sure to hedge out the USD exposure, like is possible simply with a currency hedged S&P etf. Sort of like the great long-Nikkei short-Yen trade a few years back.
    • ZY
      Zheng Y.
      20 September 2018 @ 11:39
      No need,the dollar is already bottem this week, given we have FED meeting next week. sideway trading till US economy momentum wane early next week, then come up maybe form double head or triple head.
    • ZY
      Zheng Y.
      20 September 2018 @ 11:40
      till US economy momentum wane early next year, typo.
    • DR
      David R.
      20 September 2018 @ 13:13
      Nope. USD has collapsed 100 pips or more against EUR and GBP just since I wrote the above...lol. MOMENTUM. Another key resistance looms - third one which if broken on close portends new lows and massive dollar liquidation/collapse ahead. The US is in BIG trouble but most don't "get it" yet and remain stubbornly long the dollar while their account bleeds red. Dollar is down 1% or more already today while S&P futures are up less, only 0.4%, with most foreign markets again pasting US markets especially on a currency-adjusted basis, just like before this short-lived dollar BEAR market rally. Significantly, capital flows analysis shows money fleeing US like rats leaving a sinking ship. USD could potentially crash if currencies can close up above some key resistance - not a prediction just a possibility. I've been bearish dollar here for 5 weeks as the short-lived dollar bounce failed to reach even near the 618 fib retracement. Typical of a bear market bounce. All very dollar bearish. EUR is much better - and the weak dollar has now rapidly surrendered 3 full months of gains - also very bearish having risen slowly then quickly collapsed - with many more USD lows to come in the weeks and/or months ahead, unless the dollar can quickly recover above 95.5 and preferably above 97.5 by end-of-quarter next week. Instead, it looks like 3Q will go down as an ugly key reversal for USD and the start of a greater USD collapse like from the end of 2016 through early 2018. Now, how the heck does US think it can finance its obscene deficits, especially with capital fleeing the US in huge volume as Europeans & Asian are keen to pull out of US... the US is in very deep financial trouble with its obscenely massive & worsening twin deficits - watch & see. Stay SHORT dollars until further notice: EUR/USD headed for 1.18+ then likely 1.20-1.21 next. IMHO.
    • DR
      David R.
      20 September 2018 @ 13:39
      Also, tho I'm not much into politics/fundamentals, Democrats retaking the house & Senate in six weeks plus Trump impeachment proceedings could push USD over the cliff? OTOH, if the GOP were surprisingly able to hold onto the House & Senate, USD and US markets could soar on a huge relief rally?
    • CS
      Christopher S.
      20 September 2018 @ 18:53
      What is your time frame here?? I completely agree if you're talking about the next 6 weeks or so...but in terms of a longer term dollar "bear market" I'm not seeing it on monthly charts.
    • DR
      David R.
      21 September 2018 @ 12:04
      Christopher, yes the next ~6 weeks (or more) look down for DXY, then it will go up to new cyclical highs (above the Aug high but below the Dec 2016 high), and then eventually fall below the Jan-Feb lows. For the long-term, this quarter is almost certain to draw a bearish key reversal in USD (bearish very long term). Six of the last 7 quarters the dollar will have faltered (bearish). And on the monthly, it's a clean downward channel for the 22 months since Dec 2016 thru Sept 2018, with what looks like one brief correction upward. Moving out to the entire period since 1985, you see a sequence of lower highs & lower lows with impulsive (strong 5-wave) moves down with only corrective (less strong) moves up. The last impulse down was from Dec 2016 thru Jan 2018. Since then, the dollar has been in a 3-wave correction higher (up Feb-Aug, now down Aug-???, then will go up in wave c later), following which another impulse down to new lows in the very long run. Along the way, there will be the occasional strong impressive, countertrend b-wave higher for the dollar, which will fool the fundamentals guys or cheer up the dollar permabulls, but overall the dollar is in structural decline to all-time lows fitting the pattern. I was bullish on the dollar in Jan/Feb posting in here, and I will be bullish dollar gain on an intermediate time horizon when this current leg down ends. But not yet. For now the trend is dollar down and stocks up (globally?). Good luck.

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