A darling of finance no more - MLP's getting slammed

If you want to discuss the reach for yield, ground zero has been MLP's. The strong consistent yields have been a place where investor flows have run to. The "safety" of MLP was a key argument for their preference over high yield. Their higher yields made them more attractive to dividend paying stocks and corporates, but the decline in energy prices and the continued supply from issuers have changed the dynamics of this "cheap" source of yield.

This is a "canary in the coal mine" for the what is going to happen with credit products if we have economic slowdown and a rise in interest rates. If there is a return of RO/RO trading, MLP's will see further deterioration versus other yield products. The search for yield may become the demand for safety sooner than we think.

Global equities analysis in one chart

The two dimensional chart of price to book versus ROE can give you a good idea of opportunities in global equities across countries. Hat tip to Morgan Stanley for the chart which shows how value has changed relative to ROE over the last few years. You get a clear idea that ROE are generally falling except for Japan. At the same time, there has been an increase in price to book across most countries. At best the P/B has stayed stable. The cheaper countries include: Brazil, Russia and Indonesia, but these have seen strong declines in ROE and have some unique country risks. The safe haven is the TOPIX. The controlled decline in currency with massive QE is still making the equities attractive.

What you need to know about El Nino in one picture

The latest information from NOAA  suggests that we will have a stronger and longer El Nino that will last through the winter of 2015-2016. See climate.gov. The view is often that long-term events do to matter in volatile commodity markets but we beg to differ. It does matter how you position these risks. There may not be an impact in the front-month futures, but if you are trading out of the money option in the more distant futures there can be good opportunities to create high return to risk trades. We have had good rains in the Midwest but excessive in Texas. The wet Texas weather is consistent with a strong El Nino. The weather forecasts are weighted to dry weather in the corn belt. The timing for these option trades is now.

Global macro themes for July 2015 - Greece focus and fatigue

There could be Greece fatigue. Europe and the rest of the world have discounted failure and seems ready to move on. This is what the price action of the last two days suggest, but we view that the ramification for central bank behavior and risk averse trading are significant. Hard to argue for Fed action with the Greece overhang. Tightening delay and RO/RO trading back. Yet, behind this backdrop is strong growth in the US and the developed world that is providing some tailwinds for higher asset prices.