2013 was an incredible year for stocks. One of the best in history.
According to Jefferies strategist David Zervos, you can expect more good times in 2014.
For years, David Zervos’ big calls have had a certain rhyming theme. For a while it was “Spoos and 2s” which means long equities and long 2-year bonds on a bet that the Fed would keep rates ultra-low and that 2-year bonds would represent a good hedge. Then it was “Spoos and Blues” which represented a long Eurodollar bet, which was again a bet against Fed easing.
And now the most bullish turn of all:
For the last 4 years the Fed has opened up the monetary spigots each time there was a threat to the recovery. And while the markets never fully trusted the Fed’s actions between 2010 and 2012, this year it finally became clear to even the most hardened of haters how powerful the forces of QE really are. In 2013 the risk asset dips became shallower, and the short covering rallies became more fierce. During the Cyprus crisis and the fiscal crisis the risk asset markets could barely pull back. Do we really need the headache of a back month euro dollar hedge for a risk asset long in a world where the Fed is tapering and eventually signaling higher rates? Nope! We ALL now know they have our backs on the downside – even the haters know it! — And we ALL also know that if there is marked improvement in the economy, fixed income is going to detonate! No one has your back if you own a 10yr note or EDZ6 in an accelerating recovery. It’s time to dispense with the 2s, duu’s, blues and chartreuse. They were all wonderful crutches as the market learned about the FOMC reaction function. We surely needed them in the spring of 2010, the summer of 2011 and the summer of 2012. This year however, while they didn’t cost us much, they were basically an annoyance during the very modest summertime risk asset dip. It’s time to go fully risk on and dump the hedge!! And what better way to play for a Fed induced liquidity blow-off bubble top than with one of the original bubble babies of the past — QQQ’s. We are still a long way from the peaks of 13 years ago!! It’s finally time for “Spoos and Q’s”.
The QQQs is the NASDAQ 100 ETF, representing a lot of the big tech that dominates the NASDAQ. Zervos is no longer hedging. He’s saying to turbocharge your portfolio with the heart of the old bubble. BOOM.