Quarterly Outlook
Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
The non-rebound
Steen Jakobsen
Chief Investment Officer
Summary: As we predicted, policymakers rushed to the aid of late-2018's faltering markets with more of the same: credit and a QT pause. Clearly, a new narrative is needed, and we think it's time to re-evaluate risk.
You will all recall how forcefully we argued that the world was coming to a standstill in 2018 based on our core macro view, which we termed 'the Four Horsemen':
• Quantity of money collapsing
• Price of money rising
• The price of energy = a tax on consumption
• Anti-globalisation = reduced global trade volumes
Then in December, we moved to our new theme of 'Global Policy panic'.
The Global Policy Panic argument held that, in a world with no business cycle and just a credit cycle in its place, a slowdown or an equity market selloff would be met with more credit and a pause from the Federal Reserve.
This has now come to pass, and January of this year saw a market return in excess of the weighted yearly return normally expected for an entire year!
A new impulse and a new narrative are clearly needed...
(The China-US trade deal will go ahead, but only on the level of a framework... or rhetoric, really.)
What you should be concerned about as you move to manage/protect your portfolio is summed up in these two charts from today's edition of the Wall Street Journal's Daily Shot:
• Quantity of money collapsing
• Price of money rising
• The price of energy = a tax on consumption
• Anti-globalisation = reduced global trade volumes
Then in December, we moved to our new theme of 'Global Policy panic'.
The Global Policy Panic argument held that, in a world with no business cycle and just a credit cycle in its place, a slowdown or an equity market selloff would be met with more credit and a pause from the Federal Reserve.
This has now come to pass, and January of this year saw a market return in excess of the weighted yearly return normally expected for an entire year!
A new impulse and a new narrative are clearly needed...
(The China-US trade deal will go ahead, but only on the level of a framework... or rhetoric, really.)
What you should be concerned about as you move to manage/protect your portfolio is summed up in these two charts from today's edition of the Wall Street Journal's Daily Shot:
The data presented here illustrate two major points:
• There is zero confidence in the real economy – not among consumers and not among banks.
• The first chart dictates growth and earnings, and the second dictates inflation through the multiplier and the velocity of money (i.e. ever lower inflation).
Taking action
Start by offloading 'risk-on' for a more balanced view (there is no need to panic, the illusion of an incoming trade deal and incoming reflation will largely remain just that).
Sell calls on upside equity risk, particularly in the US, which is extremely expensive again.
Increase cash or buy protection in both equities and high-risk currencies (GBP, AUD or KRW verus CHF, DKK or JPY).
It is time to re-estimate your risk. Whatever the level you have chosen, I am cautioning that the trade deal narrative could wind up being a very "buy the rumour, sell the fact" affair as the Four Horsemen come riding back in.
• There is zero confidence in the real economy – not among consumers and not among banks.
• The first chart dictates growth and earnings, and the second dictates inflation through the multiplier and the velocity of money (i.e. ever lower inflation).
Taking action
Start by offloading 'risk-on' for a more balanced view (there is no need to panic, the illusion of an incoming trade deal and incoming reflation will largely remain just that).
Sell calls on upside equity risk, particularly in the US, which is extremely expensive again.
Increase cash or buy protection in both equities and high-risk currencies (GBP, AUD or KRW verus CHF, DKK or JPY).
It is time to re-estimate your risk. Whatever the level you have chosen, I am cautioning that the trade deal narrative could wind up being a very "buy the rumour, sell the fact" affair as the Four Horsemen come riding back in.
Latest Market Insights
Quarterly Outlook
Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity
Quarterly Outlook
-
-
Quarterly Outlook
Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity
John J. Hardy
Global Head of Macro Strategy
After the chaos of Q2, the quarter ahead should get a bit more clarity on how Trump 2.0 is impacting... -
Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: Commodities rally despite global uncertainty
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Upending the global order at blinding speed
John J. Hardy
Global Head of Macro Strategy
We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ... -
Quarterly Outlook
Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever
Jacob Falkencrone
Global Head of Investment Strategy
-
Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
China Outlook: The choice between retaliation or de-escalation
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: A bumpy road ahead calls for diversification
Ole Hansen
Head of Commodity Strategy
Disclaimer