The legislative trifecta we heard about back in February is in trouble. If it’s not dead, it is on life support. Back then, everything was coming up roses. W. Ben Hunt, chief investment strategist with Salient, told us that “fiscal policy hope” was the story in the markets. He said the market was pinning its hopes on the “legislative trifecta” of regulatory repeal, tax reform and dollar repatriation and infrastructure spending. “Fiscal reform and tax cuts in particular can get the inflationary juices flowing,” Hunt says.
What a difference a month can make. Now, we have war drums beating on North Korea and maybe Syria. The reflation story is not such a headline anymore. Markets are expensive. And if Citi Research’s head of U.S. equity strategy, Tobias Levkovich, is right, the market is neutral at best. And there are more bears out there than bulls.
Fernando Pertini, CIO of Millenia Asset Management International in Panama City says he is preparing for the correction. Whatever you do, he says, stay away from the Russell 2000. Those are the lowest of the low volume small caps on the index and are the ones that take the biggest beat down in a correction. He is buying the Direxion Daily Small Cap Bear (TZA 18,03 +0,04 +0,22%), which is three-times short the iShares Russell 2000 (IWM 206,10 +4,00 +1,98%).
“Shorting small caps for me is the best trade to place,” he says. “Watch all the leading indicators pointing south: transportation, volatility (VIX 32,94 -0,53 -1,58%), gold (GLD 211,52 -1,22 -0,57%) and the yen is gaining strength too. And just today we have negative PPI (Producer Price Index) in the U.S. I think this is going to be a wake up call for asset deflation,” Pertini tells us.
Bill Gross chimed in on Thursday. “Equity markets are priced for too much hope, high yield bond markets for too much growth, and all asset prices elevated to artificial levels that only a model driven, historically biased investor would believe could lead to returns resembling the past six years,” Gross wrote in a monthly investment outlook released today. “High rates of growth, and the productivity that drives it, are likely distant memories from a bygone era.” The “Legislative Trifecta” Is Dying
The legislative trifecta we heard about back in February is in trouble. If it’s not dead, it is on life support. Back then, everything was coming up roses. W. Ben Hunt, chief investment strategist with Salient, told us that “fiscal policy hope” was the story in the markets. He said the market was pinning its hopes on the “legislative trifecta” of regulatory repeal, tax reform and dollar repatriation and infrastructure spending. “Fiscal reform and tax cuts in particular can get the inflationary juices flowing,” Hunt says.
What a difference a month can make. Now, we have war drums beating on North Korea and maybe Syria. The reflation story is not such a headline anymore. Markets are expensive. And if Citi Research’s head of U.S. equity strategy, Tobias Levkovich, is right, the market is neutral at best. And there are more bears out there than bulls.
Fernando Pertini, CIO of Millenia Asset Management International in Panama City says he is preparing for the correction. Whatever you do, he says, stay away from the Russell 2000. Those are the lowest of the low volume small caps on the index and are the ones that take the biggest beat down in a correction. He is buying the Direxion Daily Small Cap Bear (TZA 18,03 +0,04 +0,22%), which is three-times short the iShares Russell 2000 (IWM 206,10 +4,00 +1,98%).
“Shorting small caps for me is the best trade to place,” he says. “Watch all the leading indicators pointing south: transportation, volatility (VIX 32,94 -0,53 -1,58%), gold (GLD 211,52 -1,22 -0,57%) and the yen is gaining strength too. And just today we have negative PPI (Producer Price Index) in the U.S. I think this is going to be a wake up call for asset deflation,” Pertini tells us.
Bill Gross chimed in on Thursday. “Equity markets are priced for too much hope, high yield bond markets for too much growth, and all asset prices elevated to artificial levels that only a model driven, historically biased investor would believe could lead to returns resembling the past six years,” Gross wrote in a monthly investment outlook released today. “High rates of growth, and the productivity that drives it, are likely distant memories from a bygone era.”