Goldilocks or Frankenstein?
Chief Investment Officer
As we enter the second quarter of 2018, Saxo's chief economist gives his take on the state of the markets and how best to navigate these troubled times. Below is a quick run through of the most salient features. The full slide presentation is available here. Happy reading!
• Long negative growth here – Short inflation (credit impulse driver on growth – on inflation net lending is about to go negative in the US! (ie: velocity of money still dropping).
• Trade War is real factor – Next phase is the final move from a globalist to a nationalist agenda – but short-term compromise will play to mid-term election freebies for Trump, but the trend is for more isolation both ways.
• Facebook signals the start of the repricing of technology due to regulation and new pricing mechanism incoming – furthermore, it is a democratic problem due to monopolies destroying productivity and growth…
• Long CAPEX – as EV will drive biggest spend from companies and hence gradually replace buy-backs for free cash flow (potential price negative).
• Still negative dollar – this is start of de-dollarisation.
• Theme-based investment about to replace stock index trading – selective value.
• Biggest risk remains the market itself – which is short what is effectively a 5% out-of-the-money strangle.
All our models are risk-based. Quant and tactical are in capital preservation mode .
Our Stronghold Fund,which has maximum 2% tail-risk allowed, holds its highest cash in years as a function of the February increase in volatility. Also, our risk metrics are very elevated (see attached presentation, flashed in red).
Equities – underweight
Our preferences are in the battery, healthcare innovation, agribusiness and Euro banks and Euro travel & leisure sectors.
Our negatives: oil & gas, US real estate, gold mining, China and technology!
Fixed income – neutral
Slow-down in growth – credit impulse – Fed’s policy mistake into 4-5 hikes, but mostly sees dramatic slowdown in US and China growth into the second half of 2018.
Commodities – neutral
We like agriculture and metals but are sceptical about crude oil.
Cash – overweight
Overweight: JPY, NOK, and EUR
Underweight: Dollars, EM (from here – negative carry)
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.