J.P. MORGAN: DULL IS GOOD

JP Morgan strategists are betting on nothing.  Well, not literally, but they are betting on no surprises in the coming months.   As long as no shocking news events hit the market in a negative fashion they continue to think that fund flows will support the market as investors rotate out of cash into bonds and equities:

“We estimate the world remains long cash and bonds. Cash is likely the most expensive asset in the world. And fixed income is now near all-time lows. Hence, we expect to see further flows from cash and low-yielding bonds into credit and equities.”

They still see investors being too heavily invested in cash and underweight equities. They think this move from cash to bonds and equities might be half way over:

jpm

They still see the economy rebounding and a strong 2nd half GDP at 3.7%:

“The message from economic data is that a global recovery is taking hold and is spreading. Many investors still doubt it is sustainable. We believe it is, at least through next year, and find it too early to speculate about what happens afterwards.”

They remain overweight equities with particular interest in tech, energy and banks.  They are adding Russia to overweight as oil surges higher:

“remain long equities and favor Energy, Technology, and Banks across sectors. The former two tend to outperform in the six- to 12-month window following the market bottom. Banks are benefiting from asset reflation and a stabilization in housing prices. This and the prospect of dividend increases next year are supportive of a bullish view for banks. Within EM, we upgrade Russia to an overweight.”

In terms of Forex they see a potential bottom in the dollar for 2009 and would unwind shorts.   This meshes with their bearish view on oil.  They believe the recent move up in oil is unsustainable.  Despite these equity headwinds, they remain bullish into year-end.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. I wonder if these sell-side analysts in NY sky scrapers and wearing 3k suits ever go outside, walk around, and actually try seeing with their own eyes what the economy really looks like. With so much government free money distorting economic data sets, you really can’t sense how bad things are until you walk around. Go to any mainstreet all over America and you’ll see out of business signs on storefronts. Stand behind people in grocery store check out lines and you’ll see stacks of coupons in their hands and discount, generic store brands in their carts. Go to a matinee movie on a Tuesday afternoon, and you’ll see a pretty full theater of people who should be at work but have beem unemployed for months. This is what America looks like.

  2. I worked across from the World Trade Center until September 2008 and now am working in Times Square. Walking outside at lunch and on weekends, you would never know we’re in a recession. Despite a 10.3% unemployment rate (NYC), people shop here likes it’s going out of style. I’m not sure whether they’re Europeans taking advantage of the exchange rate or Americans unwilling to give up the addiction but it certainly distorts your view of the rest of the country. The only time I noticed any change was from Feb to April when I actually fit on the subway comfortably. Thanks for the insight Jack.