Marko Kolanovic Talks ‘The Trump Recession’, Says Market Damage From Trade War Is ‘100X The Tariffs Collected’
"Market sentiment is fragile", JPMorgan's Marko Kolanovic writes, in a note dated Wednesday.
Amid the trade frictions and mounting uncertainty, discretionary investors have trimmed their exposure to stocks, with hedge funds' net exposure now in just the 5th percentile. Gross exposure, Kolanovic writes, is elevated, reflecting longs in defensives and shorts in cyclicals and value, as dictated by the macro backdrop.
Overall, Kolanovic maintains a constructive outlook, as he has since the beginni
XLK has TTM P/S of 4.2 and P/B of 6.7, with record amounts of corporate debt outstanding, and that’s pricing the worst-case scenario? Jesus, I’d hate to see what his idea of optimistically priced valuations are. I know, he’s a titan of finance and I’m nobody, but everyone makes mistakes. I just don’t get why everyone assumes the ride up is 100% deserved while downward movements are largely irrational. It’s usually the other way around.
where do you see XLK mentioned in here? it’s not. i don’t want to be too hard on readers, but you can’t just conjure an ETF, cite some stats for that ETF and then implicitly claim that an analyst recommended it. that’s the very definition of a straw man argument. these are sparse quotes from one note from a quant. if you want JPMorgan’s official house view on Tech, you would need to consult the latest sector-by-sector breakdown from the bank’s equity strategists.
“We think that low investor positioning and an unprecedented divergence between defensive and value market segments warrant exposure to trade-sensitive and high-beta segments, which are now largely pricing in a recession.”
I’m challenging the idea that high-beta segments are pricing in recession, and XLK was just a quick proxy to do that. You’re right; he doesn’t say tech specifically. However, I imagine my point will hold regardless of what high-beta etf or fund you might want to examine. The point is, equities are pretty expensive by many measures, and saying that cyclicals are largely pricing in recession just because defensives have outperformed recently seems a bit of a stretch to me. Cyclicals have outperformed for years, all equities have arguably outperformed “fair” returns for years, and a couple of months of relative underperformance hardly means the worst-case scenario is priced in.
that’s a better answer. 🙂 thanks for fleshing out
Great observation and extrapolation, Chris; imo, spot-on in sentiment;. I agree and could not have put it quite so succinctly and wonk-free(~ish) accessible. Thanks.
“Well, because this can all be undone. For Marko, it’s not too late for the situation to be fixed and given the political ramifications of a “Trump recession” and a precipitous market decline ahead or (or during) an election year, the odds of a resolution are relatively high.”
Ah, yes, once again the argument that something won’t happen, because if it did, it would be bad.
I believe they said the same thing about Brexit. And about war in 1914.
Brexit and World War II would be much harder to undo. The point is that it literally only takes one man to change his mind and all this can be undone
Yep, that’s why they said World War I wouldn’t happen, too.
I think the puppet master is doing cartwheels in the Kremlin. His puppet just gave some new jet fighters to Poland. The best the US has. Might as well just have given the Russians one.
Trump may not “want” to be president but losing presidential immunity and control of levers on justice may be fraught with peril.
Intelligent people might have stupid world views and ideas. This one is a good example. A quant calibrated on a decade of buy-the-dip QE orgy.
The trade war is not happening for the last 2 years. It is an artifact of the past 40 years after the western world gave China a chance to play along. China abused this opportunity. Shit needs to be undone.
I’m not sure you understand what the job of analysts is. It’s not to opine on the relative merits of one world view versus another one. it’s to help clients make money
and, no, “shit” doesn’t need to be undone. what needs to be undone is this lunatic effort on the part of the Trump administration to roll back 70 years of globalization and trade openness which has helped pull millions upon millions of people in emerging economies out of abject poverty. sorry, not sorry, about Joe midwest’s factory job
Have some sympathy, guy. Joe midwest has kids to feed. Us not caring about him is why Trump got elected – they know we don’t give a shit about them. Thanks Hillary.
that’s not the point. the point is that, from a utilitarian perspective, globalization is unequivocally good. Trump’s narrative implicitly (actually, explicitly) suggests that Joe’s job at the factory and Joe’s family are more important than someone’s job and someone’s family in an emerging market economy, even if globalization has literally meant the difference in people starving and not starving in some EMs. If Joe has to learn a new skill or take a job making $36,000 instead of the $75,000 his dad made at the factory so that people can eat and have clean water in EMs, well then so be it. the world has changed. rolling back globalization won’t work. Trump is finding that out.
Am kind of glad you said that H……It is easy to get that point out of context when reading volumes of stuff..thanks…
Marko forgot to mention the negative effect of the tariff is also 100 times. There is always a price to pay in a war. The question is now “Do you want to win the trade war?”.