Looking Back 3 Months

Call it an NFTRH promo if you’d like, but the view played out…

When hyped up momentum plays really get going it sometimes frustrates me that being a contrarian sort, I have to go sidelines due to a momo-phobic nature and watch while new heroes – trend followers – cement their viewpoints and reputations.

As an example, I don’t think you’ve view me as a US dollar bull right now.  But last summer we (NFTRH and possibly NFTRH.com and Biiwii.com to a degree) were 100% on the bottoming and upturn in USD.  Today, legions of wise guys, geniuses and deep thinkers are schooling us on the fundamental reasons for the strong US dollar.

For another example, Europe and in particular Germany was noted at being an out performance play back in Q4 2014 due to the currency dynamics in play.  Here’ DAX now.

I did not go heavy into this personally because it is a play on policy, not a fundamentally attractive and sustainable trend.  That is another weakness of mine; much like I have trouble holding line with pure momentum I also have trouble doing as some Central Bank’s policy would have me do.  So I trade, not invest.

But I will always dredge up forward-looking information about what I think is in play, regardless of whether or not I agree with its substance and mechanics.

Here’s what NFTRH 320 had to say on Dec. 7:

Year-End Dynamics

As we come to the home stretch of 2014 I would like to summarize how I see the US economy, US and global stock markets and the global macro.  In particular, I’d like to see if we cannot make some sense with regard to investment stance [trading stance in my case] and how a strong US dollar and weak global currencies and their implications on global trade would translate to positioning.

As an example, we have Policy Mole Draghi ready to pop his head up to do as he “must” in bailing out Europe from its deflationary pull.  We have Policy Mole Kuroda already doing as Abe perceives he must in Japan.  Add to this the year-end Machine Tools data bump we have been expecting… put it all (along with other ingredients like Semiconductor momentum, jobs, interest rates, etc.) in a big pot, heat and stir.

As you will see below, I have decided to dip into the macro view with the addition of Japanese machine tool and robotics manufacturer Fanuc, a quality company I have history with as an end user.  This is simply a play on a Japan-based machine tool company during year-end bump season, which through currency changes over the last several months might logically be assumed to experience a year-end bump in exports to the US.  The chart is uninspiring, but Fanuc was the only readily tradable Japanese machine tool company I was able to find.

In fact, a ‘pair’ trade I will consider would be long Fanuc and short Hurco (ref. NFTRH+ update spotlighting HURC as a short a few weeks ago).  Unfortunately, HURC declined sooner than expected and I did not take the trade.  On any bounce to its highs a short may be considered on this US machine tool maker basically for the same reasons (in reverse) as the positive view on Fanuc. Also recall however, we noted there is likely some 3D ‘Additive Manufacturing’ hype baked into the HURC stock price.

If US machine tool companies get a year-end stock price bump in line with the graph above they could be set up bearish when sales inevitably start to wane in early 2015.  The point being, Japanese machines will be flooding into the US and aside from the fact that I consider the Japanese equipment to be of superior quality, they’ve got a positive currency profile at their backs as well.

Aside from whether or not one is interested in machine tools, the above dynamic can be extrapolated to the automobile industry, in which Japan and Germany are obviously big players.

This being a macro market report I’d better reel this in before I spend an inordinate amount of time looking for plays in what in my opinion is a policy-stoked Ponzi racket to begin with. Insofar as you wish to invest in the global recovery miracles (either actualized as in the US or ‘would be’ as in Europe and Japan) the above would distill into this dynamic, very generally speaking…

Global Investment:  Avoid or be discriminating on importers and services as weak currency effects eat away at them.  Consider quality companies that export to the US.

US investment:  Avoid heavy exporters as we watch for future weakening in the manufacturing sector. The US consumer is getting a double barreled bang for his buck with cheap energy prices and now, even a bump up in wages (see ‘Jobs’ segment below). What is he going to buy? He is going to buy gadgets (hello Semiconductors), Autos and he is going to buy services of all kinds.

Bottom Line

In the US we are entering the ‘as good as it gets’ phase. This of course was the condition in 2000 when that whole bubble blew out.  So that’s the caveat. But if we are going to follow the breadcrumbs and play it straight, the above represents a sensible guideline.