Cantillon Blog's  Instablog

Strategic Themes

1. Europe catches up to global slowdown, with headline inflation softening as commodities correct.
2. Japanese Industrial Production bounces back post quake despite slowing growth picture elsewhere.
3. Hard Asset Trade ends and inflation concerns moderate for a while.
4. The US remains the only superpower in town – concerns over decadence and decline of empire come at the wrong time.  Recognition of the problem reflects the period of difficult social mood, but at the same time it is the first step to putting things on a better footing.  Longer term, of course, I do believe that Sir John Glubb’s writings on the Fate of Empires were very much on the mark.
5. US housing bottoms as disposable incomes pick up (continued employment growth and lower gasoline prices) and apartment vacancy rental rate continues to fall, putting upward pressure on rents at a time when rental yields are already at a high level.
6. Dollar rally as lower gasoline and a change in the political tide lead finally to a recovery in US consumer and business confidence with a normalisation of US rates – rotation of growth away from commodity producers towards the US and UK.
7. Selected Greek and Portugese equities are approaching a buying opportunity
8. Agriculture has scope to correct with other commodities, but may continue to rally.  Either way, it is early in a very long-term bull market (the scope for global cooling associated jointly with lower solar activity and increased volcanic activity being an important driver).  Farmland might correct, but it is not really a bubble.

Trade Expressions

1. Long 2Y Germany vs 2Y US and vs 10Y Germany
2. US curve flattening
3. Long USD vs AUD, MXN, CAD, JPY, SEK, NOK, PLN, BRL, CNY, CHF
4. Short EUR/GBP
5. Short industrial commodities (crude, gasoline, platinum) outright, and vs selected grains
6. Short XLE vs SPY
7. Long Japan equities (small caps, selected banks, exporters) vs SPX
8. Short US high-beta/tech (AAPL, GOOG) vs SPX
9. Long homebuilders (XHB), financials (XLF) vs SPX
10. Long longer-dated (1y+) FX vol.  Can we watch DB FX vol currency index (CVIX closed 11.16) as proxy?
11. Smallcaps (eg Russell 2000) underperform largecaps
12. Short Latin America (ILF) and Brazil (EWZ) vs SPY
13. Buy breakout in China (FXI)  if we see it accompanied by good relative strength.  Lower confidence trade.
14. Buy a breakout in Piraeus Port Authority (PPA) and in selected Portugese stocks (more work required)