MF Global’s strategist for interest rate products, John Brady, sees the S&P 500 rocketing 18% to 1,300 during the first half of 2010, driven by enormous productivity gains that are creating historic profit margins. A flood of money should hit the market just after the New Year.
Let there be no doubt that the world is in risk accumulation mode. However, while monetary policy will stay on hold for possibly all of next year, long rates will start to rise because of the sheer volume of Treasury issuance. Think the (TBT). Investors will then start taking profits into June, prompted by the uncertainties of the midterm congressional elections and a possible ‘W’ recession.
John thinks that emerging markets will keep devaluating their currencies to keep exports competitive and stock markets flying, but watch out for the volatility. China is a special situation. By tying the Yuan to the dollar, they are letting Washington set their monetary policy, and guess what? Bubbles are contagious.
Like the rest of the planet, John loves Brazil (EWZ), and also South Africa (EZA), where gold, a rising middle class, and an international trade hub are the motivating stories. We are in a secular bull market for the barbaric relic, with a rise to $2,200 feasible, but don’t be surprised if we tick at $800 first. Commodities look great long term as a synthetic short dollar trade. But the buck could rally until mid year before a new big down leg renews. He is also a peak oil believer, and thinks the recent Exxon/XTO Energy deal speaks volumes about the shortage of supplies. It’s cheaper to drill on the floor of the New York Stock Exchange than 30,000 feet down in the Gulf of Mexico.
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