We have yet more soothing sounds from Central banks and asset markets appear to be preparing for the usual Christmas rally. In spite of the remaining technical issues cash is a dangerous asset in this world of understated inflation and persistently attentive central banks. It was right to go long on the lows of a week ago. On the mere whiff of asset market weakness policy makers stand ready to debase their currencies. In this environment its a tough life being any other than long assets in general. Of course some assets look much more attractive than others so whilst the momentum trade should be one part of the portfolio allocation value should and can at present offer a reasonable allocation at present. More below on this.
With these comments in mind here the Swiss team:
And here Fitzpatrick in his latest report making the case to go long oil. (A useful instrument if no access to the oil futures is UCO or USO for double leverage).
And here his last week’s report
And here MS with their usual report on the FX markets.
I agree with the thesis of GBP renewed weakness soon. The data appears to be rolling over. The GBP vs USD appears to be setting up for an entry short around the 1.535 to 1.536 level. On the other hand the ftse100 is a real international laggard and will re test highs, especially if sterling weakens. The short euro and long US$ trade is certainly crowded again but the ECB looks likely to extend this trade even further by their December meeting. Sell the rumor buy the news as action consistently usually disappoints in regards to the Euro.
And here a report on the global property market
To me, some interesting discounts to asset value are emerging in many commercial reits. Discounts of between 10 to 50% are the norm place depending on the market and balance sheet of the company in question. The general issue affecting the whole sector is that the interest rate cycle has turned and therefore property reits may soon see much higher financing costs and values may fall. In addition exposures to specific weak sectors or country risk magnifies the discounts. Two examples are the office reits like D.UN in Canada that are exposed to the energy market via their clients are showing a 50% discount to nav. Equally cos like Champion reit in HK is also showing a 50% discount to asset value at present. Many other market leading, strong balance sheet reits across asia are showing 25% discounts to nav. May be the interest rate cycle has turned at the short end of the yield curve but can it rise at the long end is a much more debatable issue. Certainly 50% discounts to nav for premium location high yield blue chip client assets appears a market mis price to me, especially if you hedge the currency exposure.
All the best
Rich