While the pundit class can be wrong on a regular basis with no repercussions, for risk takers the P/L never lies.
That’s from Bloomberg’s Cameron Crise.
And thanks a lot Cameron.
Who says bloggers and pundits don’t have positions? Sure, we might habitually lie about them and no, we’re not generally accountable to anyone, but at the end of the day, we still have to look at our P/L too.
We just don’t have to report it to anyone and we’re not responsible for other people’s money so the worst that can happen is that our pride gets hurt but again, we don’t have to tell anyone when things go wrong, so even that damage can be contained.
So yeah, life’s good for unaccountable, unscrupulous bloggers.
But Cameron likes to keep himself honest, which is why on Monday he’s going to tell you where he’s been wrong (rates), where he’s been kinda, sorta right (equities and EM), and where he just doesn’t give a shit (the dollar).
There’s nothing particularly profound in what you’ll read below, but it does serve as a fairly useful 30,000 foot view/quick recap of where things stand and more importantly, it represents Crise waxing poetic about the virtues of introspection.
One of the most important elements of portfolio management is to re-examine one’s views periodically. There is no worse feeling than getting caught out by lazy thinking and stale positioning. While the pundit class can be wrong on a regular basis with no repercussions, for risk takers the P/L never lies. In that spirit I thought a re-examination of some of my own views might be in order.
- On U.S. fixed income, I have generally thought that despite all the tactical noise we would eventually resolve in the direction of higher yields, taking the U.S. 10-year to 2.75% by year end. I have to concede that that looks ambitious and that there is a real risk that the Fed “suddenly” changes its tune. For me the two most important drivers of U.S. rates henceforth will be the level of the real Funds rate (currently -0.62% based on the IOER rate) and the identity of Yellen’s successor. I still think yields go higher, but have to acknowledge reality. Barring a significant improvement in the data, it’s going to be difficult for yields to rise much above 2.30% until the latter has been identified.
- On euro fixed income, I thought that the market would seriously romance an early 2018 ECB depo rate hike and that Bobl were the most expensive bond in the world. Draghi has largely put the kibosh on that view, At this point I can argument for bottom-of-the-drawer euribor steepeners, but that’s about it.
- The outlook for equities has, if anything, improved in recent months. The SPX real earnings yield, my favorite fundamental indicator, has gone from flirting with the danger zone to a level suggesting solid if unspectacular performance over the past few months. Europe has had a bit of the steam taken out of it. Like many equity investors, I simultaneously fear an “overdue correction” and hope that one arrives to present a buying opportunity. Experience suggests that this is a classic recipe for a painful grind higher.
- My attitude toward emerging markets has been strategically bullish while tactically worrying about a correction. I cannot claim any sort of victory for the ongoing strength of EM because of those tactical concerns. I find myself in something of the same mind; MSCI EM momentum is waning, Chinese FX seems to have gone about as far as it can, etc. In remain nervously, tactically skeptical.
- Finally, on the dollar I am pretty agnostic at the moment. Does it even really make sense to speak of the dollar as some monolith these days, when it trades well against sterling and hit support levels against the yuan but until recently looked like a pig’s breakfast against the yen and euro? The BBDXY is exhibiting some positive divergence in momentum, so from a tactical perspective it may be worth backing the buck. On a strategic basis, however, I have a difficult time taking a table-pounding view either way.