Steen's Chronicle: Back in the USA....
· From potholes to politics, the US is a mess
· Level of insightful debate is close to zero
· Trump attracting huge crowds as Clinton's star fades
· Economy is messy too and rewards will be few in 2016
· Despite all of this, what we've got is a trader's market
The United States of America is one big mess. Photo: iStock
By Steen Jakobsen
In the United States it feels like it's very late in a business cycle: the country's infrastructure is worn out, the airports here are worse than most emerging markets I have visited, highways are 'potholes to infinity' and the sense of complacency is at the 99th quartile.
The media is terrible with a level of discussion and insight is very close to zero. There is more fundamental vision in one episode of Ellen than in all of the business and news channels combined.
The US presidential election is a mess. The GOP party can't decide whether to expel or support Donald Trump, who continues to fill stadiums and arenas with 15,000 plus people while his 'opponents' are lucky to get 500. Trump does not represent America in my opinion but he does represent the old GOP party platform, which is getting "more white and more angry" while the US at large is becoming more diversified and more in need of openness and change than ever before.
Hillary Clinton is in trouble – I'm beginning to doubt she even wants to become president, but the presidential election is hers to lose and she's been here before (losing to Obama from near certain victory) – what a mess. Meanwhile, the US remains on standstill while Obama tries to create, and here the operative word is 'create', his legacy.
Thank God for college football – I watched the Alabama vs Clemson final yesterday – that's the real America! A high scoring game, brave play calls and energy throughout. The motto of Alabama is simple: Finish, Finish, Finish.
I like that and I admire the strategy and execution it takes to manage a roster of 120 players and the mega egos on those team. That's what America should be in economic terms but isn't!
Maybe coach Saban should run for office – though I'm not sure the 'markets' would like the discipline needed and the hard work on which his and Alabama's success is derived from!
Back to the market - we have just released our Q1 Outlook called "Mind the gap" - which is about how the market doesn't get the change of the price of money.
Fed Atlanta's GDP now is pointing lower and lower:
Meanwhile the Fed (and certainly Stanley Fischer) continue to talk of more hikes – four hikes is the ball park for 2016. This means wages and the labour market have priority over growth....for now.
My theory is that the Fed desperately wants to get Fed funds from 15 bps to 1.25% in order to be able to mitigate another financial crisis stemming from the clean out which has started in oil, emerging market and is about to enter the developed markets.
Yes, indeed we are very late in the cycle, so late that assets will have a hard time returning positive yields in 2016, but for now my take from the US, being in Charlotte, NC, is that it will have to get worse before it improves.
Market are oversold, yes, China will eventually recalibrate, but the complacency, the lack of ideas and the willingness to invest is obvious to a travelling economist like me.
The US is 'surviving' on discounts! The retail sectors offers you a minimum 25%, even without asking for it, to reduce stocks - post discounts comes reality, and while the retail sector understands this I still think there is a major eureka moment for the markets and certainly for the US at large.
Strategy:
I've been short most of December and Q1. The strategy is to sell on the day and close by night as long as 'intervention' by central banks remains uncoordinated.
Still awaiting clear signal from the US dollar, which continues to trade in tight range vs EUR but stronger vs EM. The US dollar remains my catalyst – I will follow the lead from 1.05 or 1.12 break... if higher, risk on, if lower, risk off.
This is not a market to be brave, but it's a trader's market – you will not hear any complaints about that from me.
Safe travels,
Steen Jakobsen
– Edited by Clare MacCarthy
Steen Jakobsen is chief economist and CIO at Saxo Bank
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