I don’t know if this is ultimately bullish or bearish, but former FX trader (and self-described “prema-bull”) Mark Cudmore isn’t predicting the end of the world anymore.
There for a while Cudmore’s daily missives were overtly cautionary. Some choice soundbites include:
Markets are sleep walking into a disaster.
I’m overwhelmed by a large sense of concern as I gaze across markets.
I’m worried.
But you know, that was “way” back in January and since then, we’ve seen a relentless rally as markets ascend Mount Siegel on the way to a summit that has turned into a constantly (upward) moving target. (Dow 80,000? F*ck it, why not?)
Well with multiples stretched, spreads at 2-year tights across credit, and volatility in the US still hovering near the 10-handle flatline, it certainly seems to me that we aren’t priced for upcoming event risk. Cudmore agrees, but on Sunday evening, he did suggest that you shouldn’t lose sight of the long-term picture which, apparently, is still quite rosy. More below.
Via Bloomberg’s Mark Cudmore
Short-term and medium-term market dynamics are diverging significantly. It’s more important than ever to distinguish between the two.
- Mid-March brings multiple event risks at a time when many markets are ripe for a correction. Don’t let price-action in the next two weeks cloud the constructive macro picture
- Along with Brexit developments, Trump and Merkel meet on March 14, while March 15 will see the Dutch election, the expiry of the U.S. debt-ceiling suspension and a likely Fed hike
- Some deleveraging before this is likely. U.S. equities, Treasury yields, commodities and even the dollar are all assets with potential for a decent correction in the next few weeks
- Don’t over-interpret any such moves. Most importantly, the global growth outlook continues to improve and, while there are undeniable risks, none of the world’s largest economies are showing signs of imminent implosion
- The EU is set to survive its 2017 political scares. China won’t let growth slow down substantially before its leadership reshuffle later this year. So far, while Trump doesn’t seem to be helping the U.S. economy much, it also appears he might refrain from any of the tail-risk maneuvers that threaten global trade. Even the Japanese economy is showing signs of life
- The Fed will raise rates. But it won’t hike blindly if the economy can’t cope. It has a proven track record of being extremely cautious when tightening monetary policy
- Just because some parts of the market seem to have forgotten that U.S. equities can fall, it doesn’t mean that it’s the end of the world if it happens. There are also plenty of investors who’d celebrate a drop of 8% or so as an opportunity to finally buy in to this bull market that they’ve missed
- How you manage the tactical risks depends on your mandate, but don’t let the noise unduly influence your macro outlook
