Macro update... NEW Allocation.. changing to Long FIXED INCOME and short US Dollar...

You know both Hardy and I have been very bullish US dollar and short FI – I am now changing my view for the following reasons:

 

Weaker US Dollar ahead…..& big value in fixed income-.

 

The main driver of US Dollar has been "cost of capital" driven mainly by "shortage" of funding dollar – this is best mirrored in basis swaps which is the price for non-US entities to access US dollar funding.

 

So….my new allocation is:

 

FIXED Income è Overweight (50%) from Under-weight (0%) vs. Neutral being 25%

Commodity è Neutral (25%) vs. Neutral

Equity è UW (10%) vs. UW (10%)

Cashè UW (15%) vs. OW (65%)

 

Currency overlay: From NET long US Dollar to now.. SHORT US Dollar…

(Net longs vs. USD: AUD, GBP & Gold)

 

Of course this is the aggressive Alpha version vs. the Beta allocation model from the Quant desk….

 

The Macro backdrop is:

 

·         Euphoria in equities: Last 24 hours I have been told:  That WHATEVER Fed communicate tonight..it will be stock market positive, that FB, GOOG and AMZN is too cheap and The Economist front-page talks about US Dollar strength……

·         When pricing action goes "exponential" it indicates "blow out phase"… and bubble….

·         Our economic indicators for US is ALL dropping…….

·         Correlations is upside down in most assets…..

 

 

I have 100% conviction on the above, but I also FULLY understand that momentum can carry on for much longer than I need/want/can afford, but FI is cheapest on 26 weeks basis as long as we have data – Trump joy has reached naïve levels – and a strong US Dollar is the LAST thing the worlds needs!

 

 

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This chart show the price of 1 year US Dollar funding for Japanese investors:

 

Late in November the price was a premium of 83-85 bps – this has now turned higher….75….

 

 

 

This is supported by our "value" and "timing" models in fixed income..

 

10Y US – observe MACD change..

 

 

30Y

 

 

 

Safe travels into XMAS,

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

Please visit our website at www.saxobank.com

 

 

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