JP have issued their monthly Equity Strat which is here below.
Its an excellent and, from a medium longer term (secular) perspective, they make an extremely bullish case which sits at odds to the credit over hang view from commentators like Gross, Faber, Einhorn and Grant to name just a few.
I would straight up here state that I don’t think all the facts are presented entirely ‘fairly’. The first example, of many, would be page three of the document which shows a chart of equity prices vs earnings. If you draw a line across the current price and last stated earnings you will see they meet ie we have a fully valued stock market at present. Whats more you will see earnings have pretty much flat lined for some time now. The combination of flat lining earnings and full valuations usually is an early indication of a market in trouble. We see no signs of this ‘trouble’ in price technical terms so no problem but i simply wanted to set right what this chart shows. In my view. And on the issue of cyclical weakness at this stage of a ‘recovery’ is more clearly seen if you have a historical macro economic perspective on how this ‘recovery’ has come about.
Having said the above there is an awful lot of really excellent detailed work here that needs some time to digest and consider. Simply as this case goes against the orthodox low growth camp doesn’t mean we should discard the view entirely. I want to understand how they have reached their view. Without wishing to pre-judge the overall secular bull case within the report, I would anticipate there is much worth in their individual points.
Without more delay here, their outstanding report.
And here their most recent FX analysis.
Of note, they maintain their long us$ positions even though they are fully expecting that the recent breakout US$ vs JPY is in fact a false breakout for the usd here vs the jpy.
That would be a shame as Im currently long US$s and have been involved in this trade for some time. Lets see.
They maintain their short the gbp vs the US$ with a large target and are bearish Euro vs US$. They don’t offer a table for reference of which they expect will be weaker between the euro and the gbp though as their targets on the GBP appear larger than the euro targets perhaps the GBP is in their sights? Its unclear at this stage. Last week the GBP scored highly but she remains very vulnerable in my view. Participants are in need of a funding currency here and now so the pack will gather at any signs of technical and data weakness quickly! As i’ve commented recently the inflation data and relative real interest rate spread vs her DM neighbors provides good ammunition for the short GBP trade to occur but only if the technical “stars” align correctly. I wouldn’t jump in front on this trade purely on the data (unless she really gets too far from the mean!). All in my view of course!
Here the short fx report.
Daily update will follow through this week on the major pairs.
Rich