Here are a couple of trading ideas from Societe Generale analysts who believe that the USA could be on the verge of a sustained recovery. If the positive economic environment persists the Fed could be forced to act. This could bring lots of moving parts together as Fed tightening and a better economic environment impact asset prices. SocGen says the way to play it is to short hold, short silver, long USD, curve steepeners and a long short global play on consumer cyclicals and non-cyclicals:
The Fed considers exit strategies
We expect the Fed to begin tapering asset purchases in Q3 and to fully stop asset purchases by the turn of the year. The rise in bond yields should be positive for the US dollar, while precious metals are the most exposed to any rise in real interest rates. See our recent reports on US monetary policy, gold and associated FX strategies. Timeline of the call: 12 months.
- Short Gold; short Silver; long USD
US economic recovery
The US economy is recovering and we recommend going long global consumer cyclicals versus non-cyclicals to play this theme in the equity space (timeline of the call: 6-12 months). In fixed income, we recommend putting on a 3s10s Treasury steepener (timeline of the call: 4m). See report.
- Long Global consumer cyclicals/ short Global non-cyclical consumer; 3s10s Treasury steepener
Source: SocGen
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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Well we’ll, more talk of recovery and Fed exit.
We will see.
Just checked out Jeremy granthams vid interview with charlie rose that was published on this site a week or so ago.
He made a compelling (data driven) case that we are in for 1.5-2 percent growth for a while in the us. There maybe oscillations around that number but that’s the number. Charlie rose said what about bernanke/fed stimulus – granthams said bernanke is “whipping a donkey” So funny.
Lets see what transpires/ we will see who is right – maybe the next 6 months. So gen or GMO/grantham.
If you agree with grantham note he has a long view- that securities etc mean revert to long term growth trends, P/E and the like. I am implying that even if you agree with grantham, so gen may also be right for a quarter or too. Such is trading/investing in the markets.
If you followed SocGen trading ideas in the past now you would be really poor. These guys are going to be nationalized within the next 24 months like most of hte french banks and they will loose their totally unusefull job. But let me say one thing: if you believe in a sustained economic recovery there is one sure trade: long oil. But if you believe there is no sustained economical recovery there is also one sure trade: buy long duration US gov bonds.
And speculating on gold (long or short) is an almost sure way to loose money.
Agree on all points.
The assumption that bond yields will rise once the Fed stops QE is highly questionable.
Right, after previous QE rates decreased. The fact is: long bonds are rare, nobody have them in portfolio and sell side WS firms are screaming SELL ! Therefore I’m buying.
Where is the difference to the current trade (long cyclicals / short defensives, short UST, short gold)? This is more of the same, just the difference this time is long USD, not short.
It is very hard for me to see how the EUR/USD can trade up from here. I think the dollar is likely to strengthen which also makes US treasuries and US investment grade corporates more attractive. In equities I would take the opposite of SocGen, I would overweight the non-cyclical defensives sectors over the cyclicals. Avoid most financials due to their exposure to Europe.
I guess SocGen’s analysts must come up with something from time to time to justify their job. It all sound pretty dumb. Everyone is capable of figuring out what to do when the Fed exists ASSUMING that it will be a normal exit due to self-sustaining economic recovery [Something that has never happened under circumstances similar to the present one].
The big IF is when the Fed will start exiting, if any, and how. I am not at all convinced that an exit is around the corner based on very weak recovery signs that still depend so much on the government largesse (cheap rates, expanding deficits, cleaning up of mortgage garbage … )
Just had a meeting with GS top strategist yesterday, and he echoed the same sentiment. The recovery theme is predicated mostly on housing which is gangbusters currently. They expect a 3% GDP toward year end 2013 as the sequester and payroll tax cut effects wane.
He seemed to think the biggest risk to equities was a fed exit which would allow the 10yr to float to a non-manipulated ~ 4% and kill the burgeoning housing recovery.
Personally, I believe the housing “recovery” is just an orchestrated short-squeeze – limit supply, REO to rent…..Been a nice bounce off the bottom, but fundamentally not supported. I’m curious to see what happens to rents when all these LP owned rentals hit the market. As for the rest of the USA – it’s a muddle through, cleanest shirt scenario for now until something breaks loose in Japan or the EU.
Until the yoke of CommieCare is vacated, there will be no recovery of the US economy…