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Monday, Oct 21
Caxton's Law reverses, goes long Treasurys
- Short Treasurys for much of the year, Caxton went to neutral as soon as Larry Summers dropped out of the race for Fed chief, and is now long across the curve, says the hedge fund's chief Andrew Law. "For whatever reason," the U.S. economy has been unable to "reach escape velocity ... tapering is off the table for the foreseeable future." He notes GDP growth has averaged 2.2% over the last four quarters with zero rates and massive QE. Why would growth accelerate now? He believes the Fed looked at the same thing at its last meeting and realized it couldn't taper.
- "There are no incentives for the corporate world to go out and spend – that, and housing, are critical ... The Fed is very clearly now seeking to lower interest rates."
- On Europe, it's better, but he's not overly excited. He's keeping an eye on the euro (FXE) and expects $1.40 to be the line at which the ECB responds both verbally and maybe with a cut in rates. "The marketplace has spent the last 4 years trying to sell the euro and not quite understanding why it hasn’t collapsed to the teens… maybe now (longs) will have their moment."
- Japan: Caxton cashed in on the yen devaluation and big stock rally earlier this year, and remains moderately bullish.
- U.K.: There is no housing bubble. The country needs another 100K new homes per year. "My forecast would be that the BoE is not worrying too much about the housing market."
- Law took over from Bruce Kovner at Caxton in 2008.
- Treasury ETFs: TLH, TLT, IEF, DTYL, DLBL, ILTB, TENZ, ITE, TLO, EDV, VGIT, VGLT, TMF, TYD, LBND, UBT, UST, TMV, TYO, SBND, PST, TBT, DTYS, DLBS, TBF, TTT, TYNS, TYBS, TBX, TRSY, PLW, GOVT.
- Euro ETFs: FXE, ERO, ULE, URR, EUO, DRR, EUFX.