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Notes From Michael Oct.20th - Greg Weldon's Bottom Line

Posted by Michael Campbell

on Friday, 20 October 2017 13:43

Greg Weldon on the Fed: If you look at the minutes from their recent meeting,  the comments from the Dallas Fed President and Janet Yellen's   statements, there’s a lot of confusion at the Fed. Namely, what is the picture of inflation? "Why is inflation not higher given where the unemployment rate is? Has something secular changed, or is wage inflation going to do what it usually does which is to show up as the labour market tightens"

To Greg, "there are multiple layers of uncertainty which never breeds confidence, and it comes at a time when the land mines have never been more plentiful.” Watch your step because there is a lot going on. Interest rates are key. "The bond market will be key going forward, not only here but in Europe, Spain in particular. "
 
"Risk is on the rise on several fronts. The consumer in the US, the US Stock Market, sovereign debt everywhere, all at a time when the uncertainty around the Fed is multi-layered"   
 
The Stock Market: Greg worries that the lack of progress on Trumps legislative agenda. The 3-4% growth that the stock market was looking to flow from his health and tax changes for the 1st quarter next year, now it is not going to happen. 
 
Trumps influence and his re-negotation of NAFTA did yield a great profitable trade for Greg in the week of Oct. 9th when he went long the Canadian Dollar just as it soared versus the Mexican Peso (see chart below). 
 

 

CAD to MXN Chart

Screen Shot 2017-10-20 at 5.53.05 AM

Interest rates: While inflation is in the pipeline, right now the consumer is slowing down because he’s been living on money that was borrowed with the stock market as the collateral base.
 
Retail sales numbers have been terrible all year. If you strip out automobiles there has been no growth. In the last report, "year over year 75% of growth came from autos (hurricane replacement auto buying and gasoline prices where 1/3 of of the rise in retail sales" "without those the results were negative.”
 
Bottom Line:
 
Stock Market: Greg is at a yellow to red light right now. He is still long Poland, Brazil, China, but if you don’t have a mandate to be long stocks he recommends staying out of the market right now. From the consumer perspective, "if you look at the consumer discretionary sector in the stock market it is getting wacked. It generally leads the S&P both up and down and it has been the upside leader since 2009. It is leadng to the downside now, sending really ominous signs about what the underlying macro final demand at the consumer level looks like". 
 
Bonds: He is on a red light for bonds, "they could be the at risk market. Interest rates go higher here, Sovereign debt, 20 trillion in the US, the amount required to fund the debt goes up expotentially"
 
Gold: Green light on Gold here. He thinks the dollar is problematic with pressure to price oil in the Chinese Reminbi a big wild card that could have significant influence. The recent pullback was just ia correction in an ongoing bull market. Greg likes Gold here. 
 
Have a great Weekend!

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Josef Ozzie Jurock Greg Weldon Ryan Irvine