Someone recently asked me how I, as one in many ways quite bearish macro guy, can stay bullish on equities. I have pointed this out on several occations rcently but here I go again;
1) central banks
2) companies are the finest materia on earth, valuations, debt levels etc.
3) a generally bearish investment community
4) a lean business cycle without general excess production that would cause a traditional recession.
(1) is a long term play. We will obviously have tradable downturns of +5% even during this period of central bank activism. But probably not until either of (2), (3) or (4) turns negative. The first tradable downturn in some time i see on the horizon is after some bear, or "not long enough" long only capitulation later this year. We are not there yet but some shorting of calls and other top consolidation strategies will be initiated later this month. I believe this low growth low volatility environment is generally good for global companies relative to both commodities ( except precious metals), and small caps. All together the downside is limited to perhaps 5% from the top. Increasing longs on downturns is preferred to shorting highs. Bearish views should be expressed with long short trades.
No point chasing downside next week either, stay long and lighten up on strength, increase on 5-10 handles from highs.
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