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‘Even Messier’: Nomura’s McElligott Conducts Post-Mortem After Bloody Monday On Wall Street

"A sloppy situation within the U.S. Equities space is getting even messier".

"A sloppy situation within the U.S. Equities space is getting even messier".
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5 comments on “‘Even Messier’: Nomura’s McElligott Conducts Post-Mortem After Bloody Monday On Wall Street

  1. No one should be surprised by what is happening. Over 30B rolls off the Fed balance sheet on 11/15. and the Treasury continues to need record amounts of new money on top of this volume, Layer on a tapering by the ECB and most likely a continued roll-back from the BOJ and you get a bloodbath in equities on Wall Street. The market leadership collapse in tech is courtesy of the BOJ and the PBoC, who by the way have every intention of making sure that Trump will not win the trade war without a financial bloodbath, one which they figure he will not be able to survive. Meanwhile Xi has a life long term.

    The Apple falling from the tree is a clear signal. As the Chinese say, “we would rather own the Apple orchard that eat all the apples.” Currently Apple Inc. is a servant to communist China.

    All that is happening is very predictable, and it does not take someone analyzing short gamma or long / short vol volume to figure out what is happening..

  2. Why would anyone be buying “value” stocks in a slowing global economy, slowing US economy, tightening financial conditions environment, and the risk the Fed goes to far? Seems crazy to me. Sure some of these growth names have risk to numbers in a recession but at hopefully lower prices/better valuations soon (and much better than when many were buying them 3 months ago) I will be betting they outperform the “value” names.

    • Spunky McGregor

      I think the most direct answer to your question is that people invested in growth equities have the most to loose in a downward-trending environment. Those stocks valuations are already in pretty rarefied air. They’ll come down, and the losers will be buried in history. Value stocks will probably fall in concert, but I think conventional wisdom is that they will fall less.

  3. Spunky, i am not sure. Typically value performs at the end of the cycle as commodity names, industrials see econ growth benefits and higher inflation. The they transition to defensives as the realization of a recession starts to appear. Agreed valuations are high on growth stocks but the numbers have potentially less risk on a slowdown (generalizing) and with lower discount rates future defensible CFs are worth more. “Value” stocks are more capital intensive and have poorer bal sheets vs growth names and secular trends still favor growth names (as true growth is rare and will get rarer still).

    Yes, they were over owned and suffering from HF problems but a lot of these names will outperform from here IF we have seen peak GDP growth.

    Maybe i am wrong and growth picks up but the premise of the piece is slowing growth, tighter financial conditions and Fed making a mistake. That is a bad situation for “value” stocks. Value viewed as low P/B, low P/E etc. These growth names have ok to good FCF yields, strong bal sheets, and better stability/growth in future cash flows (defensible biz models with moats). If rates go to 6% they’ll go lower but rates probably dont stay there long.

    I still can’t see the thinking of owning value stocks based on the premise if slowing growth, tighter fin conditions and Fed going too far. Though growth still feels mostly pricey on an absolute basis. But i am looking to add growth names on pullbacks where the valuations look good.

    Thanks for the help Spunky, let me know what you think.

  4. I should add i view value as a discount to intrinsic value rather that trailing P/E, P/B etc though the industry uses the later definition.

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