Charts

1. The Charts That Matter
Bund-unloading
May 7, 2015
By Loïc Schmid
1Investir.ch Charts That Matter are sponsored by SEQUOIA Asset Management SA
Loïc Schmid – 07.05.2015

2. 2
Views in a nutshell
Assets 07.05
S/T view
07.05
L/T view
04.03
S/T view
04.03
L/T view
Comments
Cash Keep cash for opportunities
Investment grade bonds Buy dips and new issues
High yield bonds Be selective
Sovereign bonds Great opportunities US and EU short term!
Convertibles bonds Equity-like risk
European equities Short term overextended, long term looks ok
US Equities Still waiting for a 10% correction, at least…
Japanese equities Long term trend is positive
Emerging equities Increasing attractiveness
Precious metals Buy dips
Oil Buy dips
Hedge funds CTAs and Macro strategies continue to be attractive
Volatility Buy volatility on dips
USD Looks stretched short term
Negative PositiveNo view
Previous viewsCurrent views
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Loïc Schmid – 07.05.2015

3. 3
Yields: US 10y / German 10y
Unreal!
Price
 US yields were 10x higher than German yields the other day. Thank you Mario D.
 Q/E is working. Its helping hedge funds.
 German 10y yields reached 0.07% the other day. As low as it gets?
 However, since Q/E is still “on”, yields could still go negative right?
German Bund bubble
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Loïc Schmid – 07.05.2015
𝑟𝑎𝑡𝑖𝑜 =
𝑈𝑆 10𝑦 𝑦𝑖𝑒𝑙𝑑
𝐺𝑒𝑟𝑚𝑎𝑛 10𝑦 𝑦𝑖𝑒𝑙𝑑

4. 4
 UK and German yields used to be correlated until the European crisis begun
 But then came the European Debt Crisis…
 Brexit?
Yields: German 10y / UK 10y
Oops!
German
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Loïc Schmid – 07.05.2015

5. 5
Equities: Dax index / S&P500 index
Is 2015 the year of Europe?
 German and US stocks have been pretty much correlated since 2006
 2011 was tough for European stocks due to debt crisis
 German stocks are clearly outperforming US stocks this year
 Will this continue?
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Loïc Schmid – 07.05.2015

6. 6
Equities: S&P500 Index / MSCI World ex-USA
End of the road?
 US equities have outperformed world equities for the past 7 years
 However, seems that the bull market is getting old
 I believe that we are close to a secular top in US equities
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Same period length!
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Loïc Schmid – 07.05.2015

7. 7
Equities: Nasdaq Biotech index / S&P500 index
What will stop the mania?
 Biotech stocks are soaring
 Biotech stocks are in a speculative bubble
 Bubbles can go far
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Loïc Schmid – 07.05.2015

8. 8
Equities: SMI Index / Euro Stoxx 50 index
A good thing that Switzerland is not in the EU
 Since the introduction of the EU, Swiss stocks have outperformed European stocks!
 Greece is not in Switzerland – this explains the strong performance 
 Nestlé, Novartis and Roche. What else?
€ introduced
QE + SNB
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Loïc Schmid – 07.05.2015

9. 9
Equities: Chinese equities / Japanese equities
The Battle
 Japanese stocks are soaring
 Chinese stocks are roaring
 Will Chinese stocks catch up ?
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Loïc Schmid – 07.05.2015

10. 10
Equities: Russian equities / S&P500 index
Time to buy?
 Nobody loves Russian stocks  not compliant
 Russian stocks are still cheap (P/E 2015e = 7.2x)
 Russian stocks are risky and obviously dependant on geopolitics
 Russian stocks have room for improvement
1997
Oil boom
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Loïc Schmid – 07.05.2015

11. 11
Equities: Spanish equities / Norwegian Equities
Northern power
 Spain has olive oil
 Norway has brent oil
 Unfortunately, not same-same …
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Loïc Schmid – 07.05.2015

12. 12
 After enjoying outperformance during last decade, emerging markets have been
soft/hard landing for the past years
 Chinese economic slowdown is the main reason
 However, other countries are taking the lead… like India…
Equities: MSCI Emerging index / MSCI World
Buying opportunity?
Chinese
boom
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Loïc Schmid – 07.05.2015

13. 13
Equities: Apple / S&P500 index
What else?
 Apple has been [massively] outperforming the S&P500 since 2005
 Apple is an amazing cash machine
 Apple is still cheap relative to its earnings growth potential!
 PEG ratio (est) = 0.89x
iPhone introduced
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Loïc Schmid – 07.05.2015

14. 14
Equities: BBG Basic Materials / BBG Healthcare index
Totally opposite!
 It would have been a great to have shorted basic materials stocks Vs Healthcare stocks!
 However, healthcare stocks are crowded and getting expensive while basic materials stocks
are hated. Earnings growth is improving though…
 If you are a contrarian – like me - then why not going Long Basic Materials Stocks / Short
Healthcare stocks !
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Loïc Schmid – 07.05.2015

15. 15
Equities: Coca-Cola / PepsiCo
Long Zero / Short Max?
 Since 1998, PepisCo shares have [surprisingly] outperformed its rival
 The biggest difference between Coca-Cola and PepsiCo is that PepsiCo's food business is very
strong with good growth, particularly in emerging markets!
 I drink coca-colas but I enjoy Doritos 
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Loïc Schmid – 07.05.2015

16. 16
Equities: Boeing / Airbus
Boeing has lost altitude
A380 first
commercial
flight
B787 first
commercial
flight
Source: wikipedia.org
Order books
since 2008
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Loïc Schmid – 07.05.2015

17. 17
 UBS shares have been outperforming its rival since Lehman
 UBS’s business model seems more stable and more focused on wealth management
 Crédit Suisse has more risk-weighed assets
Equities: UBS / Credit Suisse
Advantage: UBS
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Loïc Schmid – 07.05.2015

18. 18
Hedge funds: HFRX Global HF Index / MSCI World
Hedge funds need volatility!
 Regulation has increased
 Volatility has decreased
 Hedge funds are waiting for the next crisis to shine again!
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Loïc Schmid – 07.05.2015

19. 19
 Gold has – unfortunately - no dividend policy (…) which explains partially the poor
performance
 While gold is snob-ed by WESTERN central banks, Asian countries are pilling-up
 But gold can't be printed, right?
Monetary policy: Gold / S&P500 ratio
Central banks are outperforming
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Loïc Schmid – 07.05.2015

20. 20
Monetary policy: FED / ECB balance total assets
Has the ECB taken the lead?
 The FED has stopped QE
 The ECB has taken-on
 I believe that European QE will be slowed or stopped sooner than later due to European
political turmoil (…)
FED Q/E #1,#2,#3
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Loïc Schmid – 07.05.2015

21. 21
Key takeaways
 US equities – the end is near
 European stocks – room for improvement
 Swiss stocks – expensive
 Emerging markets – opportunities
 Fixed income – current weakness in EU sovereign debt is a s/t buying opportunity
 Commodities – buy dips in Gold, oil and commodity-linked stocks
 Volatility – buy dips
 Cash - overweight
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Loïc Schmid – 07.05.2015

22. Disclaimer
ECB
22
The information contained in this material should not be construed as a recommendation or solicitation to buy or sell any security, or
to participate in any investment strategy. It does not take into account the specific investment objectives, financial situations, or the
particular needs of any specific entity or person. Investors should make their own appraisal of the risks and should seek their own
financial advice regarding the appropriateness of investing in any securities or participating in any investment strategy. This material
should not be construed as legal, business or tax advice.
While the information (including any historical returns) in this material has been obtained from sources deemed reliable, SEQUOIA
Asset Management S.A. does not guarantee its accuracy, timeliness or completeness. Any opinions expressed herein are statements
of our judgment on this date and are subject to change without notice. Past performance is no indication of the future return.
This information document or any part of it should not be copied, reproduced or distributed to anyone without the prior written
approval of SEQUOIA Asset Management S.A.
Investir.ch Charts That Matter are sponsored by SEQUOIA Asset Management SA
Loïc Schmid – 07.05.2015