Here It Is...Team Macro Man's 2018 Top Trades

Here it is folks, the 1st annual Team Macro Man Top Trade Ideas for 2018.

I love the diversity in the ideas here. Nobody jumped on the short 10y UST bandwagon with Goldman and Apollo….and nobody joined the quant folks at JP Morgan in suggesting trades that are a great conversation starters with the ladies at the Columbia University physics department holiday party.

In fact, the ideas are so diverse it is tough to pick out any common themes, but that shouldn’t be too surprising when the most dominant theme of 2017 was probably “low vol”. Another dominant global theme this year has been “synchronized global growth,” which is now leading many strategists to predict widespread monetary tightening in 2018.

The “morning in Europe” and, I’ll add myself, the potential “morning in Japan” themes could be big game changers in 2018. Wages and inflation haven’t picked up much, but if they do, there is more to go for asset markets, FX and rates in both regions. Lastly in the US, despite what I have written here about inflation and curve-flatness, I have a tough time envisioning a increased pace of tightening by the Fed that would cause a significant strengthening of USD, which points to more of the same next year--risk on, flattening, low vol. Equity markets may have gotten a bit ahead of themselves with the tax reform rally, but that will be a distant memory by next December.

This type of “forecasting” begs to be shown up in short order because we simply don’t have a crystal ball that tells us what surprises the world will throw at us in the next twelve months. But what we really want to get at here is not so much the trades but the themes--what will be the game-changers? What is the market not expecting? Keep that in mind before opening the bomb bay doors in the comment section.

With that, take it away TMM!

TMM #1: Short JPY vs. g10 basket
Long term solution for Japanese debt given growth outlook (it will go up but 10% real ain't likely) is to run inflation hot. Near term global growth picking up and hence global neutral rates going up. Locally growth picking up. BOJ will not move short rates. They might let the curve go. Rates differentials, inflation, deficit and lack of other solutions means they likely let the currency go.

TMM #2: Buy IBov/EWZ vol
I like Ibov (and EWZ) for 2018 but think the vol, is very low in historical terms, specially for a election year.

TMM #3: Receive 2y China Rates
There’s no doubt the deleveraging effort is sincere, and no doubt that the debt burden will go up if they force corporates and SOE’s to refinance at higher rates. If the government want a lower debt burden, they need to pull rates down and clamp down on lending. By phasing out guaranteed wealth management products, they drive savers into the arms of government bonds. Buy 2y CGB’s if onshore – rec 2y NDIRS if not. Enter Target 2.75% 2y yields. Stop at 4.50%.

TMM #4: Long GE, ATM covered writes (with roll-up)
In the eventuality it rallies...much. Dividend IS covered and jumping on any premium should be better than best Utility trade.

TMM #5: Short all manner of Aussie coal/housing retail with ratio spreads or credit spreads. Not looking for BIG payoff, but "safe" payoff.

TMM #6: Short EUR better late than never. ;)

TMM #7: Buy Uranium (URA) Two dominant suppliers co-ordinating major supply cuts to help balance the market, with the Cameco CEO of literally saying “we can actually buy uranium cheaper than we can produce it.” The industry which has been battered since the 2011 peak (URA was down 80-90% at its bottom) and the cuts were timed just before the 2018-2020 bulge in the long-term utility contract rolls. Chance for a huge sentiment change with investors, especially if the hereto disciplined utilities that have (rightly) been waiting to renew contracts worry about the market being under-supplied and race each other to renew their contracts. (see 2006-07 for the last time that happened).

TMM #8: Buy Greece (GREK) or Greek Banks (ALBKY/etc) Everyone's been burned and the French solved the IMF/German impasse - “The Eurogroup formally agreed to a longer-term French plan to link the scale of Greek bond repayments to the country’s economic growth…”. This means a bunch of catalysts - banks passing stress tests, exiting the bailout, issuing debt in the public markets, maybe even an Syriza loss in an election - for a country (GDP fell by more than US great depression) and market that's looked at as dead.

TMM #9: Buy Argentina Equities
Team Macri, baby! If Macri is Reagan, and Sturzenegger is Volker, where are Argentinean equity prices going? What about Real Estate and Private Equity?

TMM #10: Short TSLA

TMM #11: Short S&P“A Brisk Trip back to 1854” (quick, to the point...I like it. --ed)

TMM #12: buy XOP unloved, under-owned, misunderstood, pegged to WTI at a perceived ceiling of $50 (which looks more like the floor now), grossly undervalued at current underlying commodity price level.

Cuts, cuts, cuts... Biggest beneficiary of upcoming tax cuts for two reasons: direct - 15% haircut off of its current corp tax, indirect - more disposable income in consumers' pockets will translate into longer miles driven and therefore higher demand for gasoline. OPEC output cuts extension is going to drive hungry oil customers around the world towards US producers. Asia is putting huge orders in for US shale and Gulf of Mexico oil.

TMM #13: Short Gold/short USD/JPY spread trade

TMM #14: Buy EURCHFIt's the only macro trade I've stayed long (via options) for over 4 months now, so it's got that going for it. Thesis is "Morning in Europe" and global growth draws out Swiss capital, pension funds start lifting hedges, etc..

TMM #15: Sell MXN, buy a basket of high yield EMFX: ARS, BRL, RUB Political risk, NAFTA risk, energy prices and high real rates conspire to further subdue investment, consumption and growth in Mexico, while positive local dynamics, strong macro trends and flat-to-higher oil prices support the high-yielders.

TMM #16: long USDTWD (or SGD)Betting on slower global growth, particularly in China

TMM #17: Long USD/CADIn USD-CAD For expiry One year
Buy 1.2600 USD Calls
Sell 1.3400 USD Calls
Approx cost 244 CAD points
both in equal amounts.

TMM #18: Long AUDNZD A way to express re-flation trade. Terms of trade between the two countries express a commodities skew towards metals & energy - In addition, for the kiwi leg, they basically have a socialist leader who thinks their current low unemployment is still too high and wants a weaker NZD

TMM #19: Buy/pay 5s10s breakeven steepener Equilibrium breakeven spread even in the recent low inflation rate environment has been ~50bps, you can pick up a steepener these days with less than 10bps downside before the breakeven spread becomes inverted for ~40bps upside as a way to capture risks of duration sell-off in the long end

TMM #20: Short US High Yield If rates go higher, you win, if Vol goes higher you win, if growth slows down you win. Of course you lose if 2018 is a repeat of 2017 but the carry is a small price to pay. Though it is possible that spreads tighten more and the rate movement does not offset all of the gain.

Shawn
TeamMacroMan2@gmail.com

@EMInflationista