Market Outlook – March 2017

Chief Investment Officer of John Bridgeman Limited, Stuart McAuliffe, states:

“We made some decisions last year that played out very well, resulting in an increase of over 100% on our trading accounts in six months. While anything can happen in the market, we expect to even better that achievement this year. As a result, many have asked us what we think will happens this year.

While we cannot give you all of our proprietary models, we can tell you what we think will happen and where the action lies:

  1. Chinese stocks go on a mid to end year tear beating all developed markets, soaring over 20%.
  2. The Mexican Peso continues as the best performing currency in the world doubling its returns so far this year (approximately 12% so far).
  3. Reformist Macron wins the French election and French stocks soar taking European banks and insurers with them. A 20% ‘up year’ in European stocks crushes bears.
  4. Bunds (German 10 year bonds) and other safe havens get truly mauled (they had it coming).
  5. Commodities continue to rally into year-end after a dip right now, confounding critics.
  6. The British Pound becomes the best performing developed world currency from here, closely followed by the Euro rallying 10%, again shocking forecasters.
  7. The NASDAQ 100 is the best performing US stock index.
  8. Trump economic policies fail to deliver for most of this year, but all come together by the end of 2017 and push markets higher into year-end and the bull continues throughout 2018. Bears tell us daily that this just cannot be – but we believe it is.
  9. The ASX is an average performer – we think you should focus on global funds.
  10. If you think you are long enough stocks, you probably are not. If you are worried you are too conservatively placed, well, don’t say we didn’t warn you.”

Market Outlook for January 2017

Hit Pause at the Party

We believed equity markets would run into year-end and this has generally occurred. Partly, this may have been inspired by politics, but we think it was more seasonal and driven by improving economic data. The challenge during the past year has been to avoid significant drawdowns as markets have fallen and risen on huge volatility. US small caps are all the rage right now, but they were down 20% in February and looked like falling further. Other equity markets, including Australia, have performed similarly.
In that environment, we chose to be hedged for the whole year holding precious metals, bonds to some degree, and large positions in undervalued risk off currencies. There were enough bumps in the road to successfully trade around the hedges and, at times, book substantial profits. For example, we closed positions around Brexit and the Trump election surprise, generally booking profits on both sides of market moves around currencies and equities.
Of course, that is all history now and we are looking forward. We are opportunists looking for tactical and strategic plays and combining them where we can. So, for 2017, we see a land of opportunity, because we believe markets will be even more bifurcated and consensus will be even more wrong than usual.
Firstly, we think the equity markets, particularly in the USA, will become jaded with Trump and start to focus on tightening conditions, including rising short and long term rates and the rising US dollar. We believe Trump tax cuts and fiscal policy will not impact the markets until the end of 2017 or 2018 at the earliest, but the rate rises and dollar rise are already having an effect and the biggest risk is a contraction in multiples. Add in some risks in Europe and China in particular, and the environment could tighten considerably.

Do not forget that this is all short term tactical positioning and if we see a significant correction, we will be most likely buying it. For a part of the year at least, however, we believe the opportunities lie in some major anti-consensus trades. We think this could include selling the US dollar, buying US treasuries, particularly ten-year government bonds, and selling US equities. not shorting them, just booking profits.
We think investors should be patient as the dip may occur around mid-year, but we believe it may start in January – although we might be early. Then, at some point, after all the major European elections are done (Will the EU break apart? Forget about it!) and Trump has enacted policy, then equities markets will be king heading into 2018.

Market Outlook November 2016


We believe bonds are likely to be an enormous bubble. They peaked in June and the pain has just been getting worse. If you stay with these investments a while longer, you may suffer severely. The same applies for bond proxies, yield plays that have hit their highest valuations ever only to crumble since June. Many portfolios are loaded with this type of asset – good luck; we think you will need it.


The US Dollar has taken some hits this year over doubts on interest rate rises, and the Yen in particular has risen dramatically – over 20% at one point. The AUD has bounced from 68c and the Euro came off its lows. We believe that is all about to change and the USD is likely to embark on a seriously barnstorming run.


We think most stocks will go up, including the ASX, despite a lack of focus on profit growth and general company management – but a bull market rises all boats. Financials could go up a lot assuming negative interest rates are eliminated and inflation comes back steepening the yield curve.

President-Elect Trump

A lot of people have asked us what we think. So here it is:
President Trump is likely to have a massively bullish effect for two reasons. Firstly, a policy of dramatic increases in infrastructure spending coupled with large tax cuts and tax reform will drive growth for many years in the USA and the rest of the world. Copper did not have its best week ever for no reason. Secondly, by luck or design, Trump has got his timing right.
The USA has been stagnating for decades so it will not take much of a spark – and Trump is promising a raging fire. The economy was poised for inflation anyway and we are about to find out how much fuel all of the QE from the last seven years counts for – possibly a great deal.
Inflation could increase significantly, reversing the 30+ year rally in bonds, particularly long dated ones. If that is true, many of the assets that have been chased to ridiculous prices will get crushed. Many people think that will include stocks, but we do not. The ASX is the same level it reached ten years, Europe is nearly twenty years on from their peaks and Japan – approximately forty years. Stocks have lagged significantly, but we think that will change dramatically and investors will be horribly placed – as usual. Even investors who have tackled stocks have favoured market neutral funds – and you do not want that sort of strategy in a bull market; you want to be long.


After Brexit and the Trump phenomenon, it is not hard to imagine that all the major leaders in Europe will be removed in elections over the next 12 and 24 months. This could not happen soon enough given the dead bureaucratic hand that seems to praise sclerosis and epic incompetence that has made the Eurozone so attractive to leave at all costs. We think that will change and the upside could be tremendous.

Macro Environment

We believe that the macro environment has caused turbulent events like Brexit and Trump, rather than the events themselves causing the turbulence. However, these events have made market participants anticipate further activity is likely and the reduction in outliers and unlikely events is the very definition of how a trend forms. We believe that stocks outperform almost everything else from here – significantly. On this basis, we think the real returns will be made early and investors will adapt after that occurs – it started in June, so it is already possible to identify who has captured it, and who has not.

Market Outlook July 2016

In our last Market Outlook back in March 2016, we forecast that the UK would certainly vote to leave the European Union. Not many believed us. However, that is old news now so where to from here? We believe that the recent rally in global equities marks a serious regime change that is only just getting started. The recent up moves have been like two people sharing a glass of wine and we think it ultimately ends in a full-on Roman Bacchanalian festival.
We think equity markets may slow a little in August and September, but then move substantially higher, particularly after the US Presidential elections in November. We would be interested in buying any weakness after a Trump victory.
Henry Morgan Ltd has gradually added position size since listing in February 2016 and is now fully invested in equities, currencies, bonds and commodities including hedges.

Bullish Conversion

After equity markets dropped significantly in February 2016 and suffered from quite extreme short-term volatility for almost the entire calendar year thus far, we have converted to the bullish side and now see opportunities practically everywhere – although we could be totally wrong.

Central Bank Monetary Policy and Government Fiscal Policy Stimulus

We suspect that Brexit may give policy makers the impetus, or the excuse more likely, to finally push the world to reflation. We hope so, although the Europeans have been flailing for nearly a decade so we assume it will literally take whole sovereigns becoming insolvent to finally have them even discuss the issue or possibly a major bank facing serious difficulty. Note that Greece has been going since 2011 and a final resolution is not even on the agenda. Recapitalising European and/or Chinese banks would, we think, be extremely bullish and would send strong policy signals.
Ironically, further stimulus may finally end the bond bull market and we would be avoiding government bonds from here and focusing on corporate debt. Fiscal policy is likely to see a resurgence almost everywhere except Europe and the USA may lead the way with Great Britain. This could well fuel a fire in equity markets with many investors badly placed in what we think will be ill-performing asset classes.


We have been heavily involved in the currency markets, which have seen some significant swings across the board. We think the Mexican Peso is one of the world’s cheapest currencies, but our position has suffered from one factor – Donald Trump. When a potential new President is stating that he would like to put on a 35% tariff, review NAFTA and build a huge wall, the currency of Mexico will suffer – and it has. However, we remain bullish on the Peso and it is a good yielder.

We expected the Yen to run upwards, and it has. We also think the Euro and the British Pound may also stage a recovery into next year, but we will wait and see what happens economically. Overall, we think growth picks up with still low inflation and relatively low rates- this is pretty much consensus, but we think this could change quickly to higher rates of growth and higher rates of inflation. However, we think the impact on some equity markets will be more extreme to the bullish side. We believe that we are close to a major inflection point that changes the global economic dynamic from deflation to inflation with profound effects.

Gold and Silver

The precious metals complex has outperformed this year and we expect that to continue. We do not think gold and silver are being used as safe havens, but are signaling reflation. We are not normally particularly interested in the precious metals complex, but at the moment we think a multi-year bull market could unfold taking gold and silver in particular much, much higher. Gold bugs may have their day again after being badly beaten the last few years in what may prove to a dip in a huge bull market.


Returns over the last two years have primarily been based on currency trading while equity markets were largely stagnant. Equity markets were volatile around a flat trend line and despite some precarious moves, frequently ended where they started looking at quarterly and six monthly data. We think that is changing now. Certainly we think volatility stays so expect plenty of large up and down moves, but we believe the ultimate direction is higher, possibly a lot higher.
We think the best opportunities are in markets more attuned to growth and also markets that have been flat or even down for many years. This is a long list with many equity markets performing poorly for over a decade, and in Japan’s case since the 1980’s. Europe is not far behind having seen higher stock prices in the 1990’s than where we are today.
We believe Australia is deeply undervalued. We think the same of China, deeply undervalued and with a market constructed for epic rallies (or epic busts if we are wrong). The USA probably faces some valuation headwinds, but the NASDAQ may still shine. The UK could go up another 30% quite quickly. Valuations are cheap and stimulus could give a serious push. Of course, leaving Europe is hugely positive. Ironically, Europe may wake up and do something positive.
We have been bullish on Europe for a while and been disappointed. We did not think that any group of people could ignore their economic peril for this long, but we were clearly wrong, at least for now. If the Europeans ever get going it will be a huge party and we will try to join in.

Japan looks really interesting. Everyone loved Japanese equities when Abe came in, but this has turned to hate – so we are falling back in love as we think there is a big opportunity. We think Japan should be double what it is now based on valuation and long run policy, but we might be disappointed.
Overall, we think sticking with cheap, high yielding currencies, avoiding bonds, loading up on equities and hedging with big positions in precious metals is the way to go. If we are wrong, we will happily change our minds and seek to adjust – but we are pretty confident we won’t have to.

About Us

John Bridgeman Limited is an investment management company listed on the National Stock Exchange of Australia.

John Bridgeman Limited was established in January 2015 with the following objectives:

  • To build a diversified investment management business growing funds under management over the medium to long term;
  • To invest in listed and unlisted companies which the Company believes will provide opportunities for moderate to high investment returns over the medium to long term;
  • To grow a diversified income stream uncorrelated to traditional equity market investments through management fees received from managing the investments of third parties, as well as returns from direct investment in listed and unlisted structures;
  • To provide investors with exposure to global markets through the Company’s own investments; and
  • To provide a low cost management company where key personnel are rewarded with long term options linked to the share price of John Bridgeman Limited to ensure the Board, key management and shareholders’ interests are all aligned.

  • Market Outlook - March 2017

    We made some decisions last year that played out very well, resulting in an increase of over 100% on our trading accounts in six months. While anything can happen in the market, we expect to even better that achievement this year. As a result, many have asked us what we think will happen this year.
  • Market Outlook for January 2017

    We believed equity markets would run into year-end and this has generally occurred. Partly, this may have been inspired by politics, but we think it was more seasonal and driven by improving economic data...
  • Market Outlook November 2016

    In our last Market Outlook in July 2016, we said that markets had experienced a bullish conversion. Now we are really bullish - on stocks and almost any product that is risk on.
  • Market Outlook July 2016

    In our last Market Outlook back in March 2016, we forecast that the UK would certainly vote to leave the European Union. Not many believed us. However, that is old news now so where to from here?