The insane scramble into US risk assets continues unabated this morning.
Shorts have had their face ripped off, and we seem to be getting closer to that capitulation “just get it in at any cost” point.
The Russell 2000 ETF is up over 16% in the past month since Trump was elected.
Although I understand the narrative of why America is a much better place to buy risk assets than most other countries, the optimism is overdone. Instead of just shorting US risk assets, I think a much better way to play for a short term end to this trend is to buy emerging markets and short US equities.
Have a look at the MSCI Emerging Markets Equity index versus the S&P 500 over the same time period.
Spooz are up 7.5% while emerging markets are down 2%. Until the past month, these two indexes were tracking much more closely.
Although I know the US is much farther along in their embracing of fiscal stimulus over monetary solutions, the hype surrounding the Trump revolution has reached ridiculous proportions. If the American reflation is anywhere near as successful as the markets believe, then the global economy will most likely be much more booming than the current pessimistic outlook.
I think swapping into emerging markets risk assets makes tons of sense in here.
Thanks for reading and have a great weekend,