SO HOW DO WE MAKE MONEY WITH THIS?
Every edition of FFTT ends by asking “So how do we make money with this?”, because in the end, our singular focus is on helping our clients outperform.
In a world where everybody says they are contrarian, and where many clients say just one big call a year from a research provider is massively-value added, our track record of finding investment opportunities where consensus and reality are at odds with each other speaks for itself.
A partial compilation of significantly contrarian calls by FFTT that helped our clients:
- Consensus in Autumn 2014: “US shale revolution has OPEC in trouble” - FFTT view: US shale sector reminds us of the US Telecom sector in 2001 – based on expensive oil & cheap debt; if either factor changes, US shale may be in trouble.
- Consensus in 4Q14: “US consumer will benefit significantly from lower gasoline prices” - FFTT view: US consumer gas savings will be more than offset by sharp increase in US healthcare costs due to rollout of Obamacare.
- Consensus in 1Q15: “Consensus in 1Q15: “The Fed will raise rates in June and if not, in September” - FFTT view: The Fed hasn’t raised rates with the US ISM < 50 since 1981 and likely will not do so in either June or September, due to weak US energy & consumer/retail.
- Consensus in 3Q15: “Oil prices should continue to recover, possibly aided by an OPEC cut” - FFTT view: We’re hearing ‘something changed in August’ in oil, OPEC is unlikely to cut production as Kazakhstan joins Russia in the floating of their currency (oil negative).
- Consensus in 4Q15: “US economy should accelerate in 2016E, support 4 Fed rate hikes” - FFTT view: Take the ‘under’ on both US GDP growth and the number of Fed rate hikes in 2016E due to weak industrial (due to energy) & weak consumer (due to Obamacare.)
- Consensus in 1Q16: “US economy in severe trouble on oil price declines, USD is going higher” - FFTT view: Energy and commodity prices are trading near 100-year lows relative to broad market indices, even as global policymakers are hinting that USD needs to be devalued – be overweight energy/industrial shares & other ‘weak USD assets’.
- Consensus in 1Q17: “The USD will likely continue to strengthen driven by a strong US economy and positive rate differentials.” - FFTT view: The combination of widening US Federal deficits & a weaker-than-understood US economy suggest that unless the USD is significantly weakened, the US economy and risk assets could come under pressure.
- Consensus in March 2018: “The USD will likely weaken.” - FFTT view: The selloff in UST’s during the February equity market selloff spooked the Fed; we believe Fed has become more hawkishness to effectively stabilize/defend the USD, keep private sector buying UST’s; our NT USD view shifted from bearish to bullish on this.
- Consensus in 3Q18: US risk assets will rise with USD, US rates - FFTT view: 10/18/18 = Negative FX-hedged UST yields for foreign investors means risk off until new USD liquidity is injected/USD is weakened
- Consensus in January 2019: “Bearish on risk assets” - FFTT view: 1/9/19 – Near term consensus is too bearish on risk assets; intermediate not bearish enough unless new USD liquidity is injected/USD is weakened notably in 2019.
- Consensus in 2Q19: “Fed will not cut rates in 2019” - FFTT view: 4/30/19 – Fed Funds > IOER means Fed will soon have to inject USD liquidity into a good US economy to mitigate strains caused by the US’ own fiscal situation. Buy gold, risk assets, & banks.
- Consensus in 3Q19: “Risk off, $17T in negative yielding debt” - FFTT view: 8/15/19 – “Fed is likely T-minus 2 months from being forced into sharp rate cuts &/or permanent QE by rising US deficits into not enough foreign UST demand with the USD trading at current levels.”
- Consensus in 4Q19: “Fed actions in repo markets are just temporary” - FFTT view: “Repo rate spike means Fed has now been forced into effectively financing US government deficits via the money markets for the foreseeable future or until the USD falls sharply enough to restore the global foreign private sector UST bid to full strength. Likely bullish for gold, risk assets, bearish for USD.”