Expectations of continued monetary and fiscal stimulus continue to suppress U.S. real interest rate expectations providing fundamental support to gold prices from a short-term perspective. From a long-term perspective, gold is elevated relative to consumer prices and the broad commodity complex. We expect gold prices to remain supported while consumer prices and the commodity complex…
Even as dividends on the MSCI U.K. have seen drastic cuts, the index’s dividend yield remains more than double the MSCI World at a healthy 4.5%. The EWU ETF looks set to benefit from cheap valuations, the recovery in resource prices, and the potential for pound sterling appreciation. In terms of relative value, Amazon, Netflix,…
The yen remains out of line with its fundamental drivers, thanks in part to a surge in yen crosses which are at risk of reversing should the risk recovery unwind. In the event of continued dollar weakness, we would expect the yen to join in with the other majors, or at least not depreciate. After…
The U.S. economy is transitioning from deflation to stagflation which should see the SP500 fall while commodities and precious metals rally as has typically been the case. Equity bear markets tend to be associated with rising inflation which we believe reflects the lagged impact of prior reckless monetary and fiscal policies. The more the Fed…
Inflation break-evens continue to price in a low long-term inflation outlook the likes of which we have not seen since the Great Depression despite surging money supply growth. We would not be surprised to see inflation head into the high-single digits towards the second half of the decade as investors balk at the prospect of…
We remain bullish on the WisdomTree Emerging Currency ETF which we entered on April 2 owing to the elevated level of real and nominal yield spreads and cheap valuations. Even after a slight decline in EM real yield spreads, the average real yield in the CEW basket exceeds the U.S. by almost 5 percentage points.…
Energy stocks are dirt cheap relative to the overall market based on current oil prices, suggesting XLE outperformance versus SP500 even in the absence of an oil-price recovery. Despite the strong cyclical nature of oil price trends, the ratio of XLE to SP500 is trading as though investors expect a continuation of the bear market…
Intro: The U.S.’ long-term productivity decline has its roots in its declining savings rate, which is a partly a result of fiscal and monetary policy decisions. Any reduction in foreign investor demand for dollars would require the U.S. to raise its savings rate or encounter an investment collapse in order to run a current account surplus.…
While low bond yields certainly do make equities more attractive relative to bonds, this is entirely because they make bonds particularly unattractive. Over 100 years of U.S. data and current European data show that interest rates have little baring in current equity valuations or subsequent equity performance. Investors have historically required high absolute returns on…
The Brazilian real is trading close to valuation levels seen when the economy was saddled with external debt and faced imminent threat of default in 2000. In 2000 central bank reserves amounted to less than half of general government external debt while the current figure is over four times. The deeply undervalued currency and stable…