In a special episode of “Trade Ideas,” Rick Bensignor sits down with Mark Yusko of Morgan Creek Capital Management to discuss how traders and investors should position for the upcoming FOMC decision. They debate the outlook for U.S. equities, and review why oil prices may remain lower for longer. Yusko also highlights a particular macro pairs trade he favors right now. Filmed on July 30, 2019. Watch more Real Vision™ videos:
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Today's FOMC Decision: Will the Fed Cut Rates? (w/Mark Yusko)
Transcript:
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MARK YUSKO: We can't vanquish the enemy until it's important and makes a splash in the press. So, we always have a new enemy. He creates enemies to topple. There are enemies. There was no problem with North Korea, hasn't been a problem with North Korea for decades. But he creates a problem and then goes over and doesn't get a solution and then moves on to the next thing. So, now it's Cold War 2.0 in Huawei. This whole thing about Huawei, 10 years ago, the US and China had to make a decision. What were they going to support technologically? We supported the Fangs. So, we are the world leader in social media. We're awesome. They decided to back AI and 5G. So, they're the world leaders in 5G. You get off the airport or get off the airplane in Mexico City, plastered billboards everywhere you can see, 5G from Huawei. Go to France, whole buildings draped in that fabric that says 5G from Huawei. They're killing us in 5G rollout. And so, we had to demonize them and create this cold war, rasky enemy. The reality is China's just doing what they do. They're leading in technology. They're filing more patents. They're graduating more engineers. They're building better companies. And look at Tencent and Ali Baba. Again, eating our lunch. So, the great trade is long China, particularly the A shares and short the S&P.
RICK BENSIGNOR: That's interesting because I got clients back into China early this year. We had a big move, we actually sold out and came back in it June.
MARK YUSKO: Awesome, love it. Now, it's a better trade than my trade because I've been long all year, but you had better trade. You're a trader, I'm investor.
RICK BENSIGNOR: Yeah. So, I agree with you that China is a place now, would I buy China and be short the US? I don't know because the S&P is seemingly the only place to be that continuously makes money and again, it can really do with all-time highs.
MARK YUSKO: So, the Tina trade I think is so overdone and said, the S&P is basically flat for last 18 months after dividends and inflation. Earnings are collapsing, horrible earnings season, more horrible earnings this morning, bad earnings. So, we're going to have two consecutive down quarters of earnings. I believe we're actually going to be in recession sometime over the next four quarters. But when I say recession, I don't mean like a collapse like global financial crisis. I mean 2001, 1% average growth over four quarters. That's a recession. Shallow but still a recession. And I think that the S&P is going to fall and look, I said last October, that the S&P would fall 40%, 4-0% to get the fair value. Well, I'm only wrong in the sense that it's not down 40%. Now, it went down 20% as it rallied back to even, back where it was last September, October. But we're not wrong until we're at the end of the period. Going to need a half year to be to be wrong.
RICK BENSIGNOR: December we got down, the S&P I think was 2350 give or take a couple points. We've rallied significantly from that. By early January, I told my institutional clients that that low was not
only a good trading low, but the cyclical low.
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