Steen Jakobsen, Saxo Bank chief investment officer, changed his macro allocation model today. Here is the email from Steen describing his model changes.
Weaker US Dollar Ahead – Big Value in Fixed Income
I have been very bullish US dollar and short Fixed Income. I am now changing my view for the following reasons:
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.
My New Allocation
- Fixed Income: Overweight (50%) from Under-weight (0%) vs. Neutral being 25%
- Commodity: Neutral (25%) vs. Neutral
- Equity: Underweight (10%) vs. Underweight (10%)
- Cash: Underweight (15%) vs. Overweight (65%)
- From NET long US Dollar to 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.
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 are 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.
Correlation 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 Fixed Income 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!
Safe travels into XMAS,
Steen Jakobsen Chief Investment Officer
If Steen is correct, and I believe he is, this is how I would rate the standout ideas:
- Gold and gold miners
- Short US dollar (I like the British Pound here, Brexit worries overdone, Euro risk high due to Italy and other European elections)
- Long US treasuries (10-year or 30 year)
I have positions in points one and two.
Mike “Mish” Shedlock
“When pricing action goes “exponential” it indicates “blow out phase”… and bubble.”
I have been thinking the same thing.
Advice like this is useless without knowing the author’s time frame. Is he a short term trader (how short — hours, days or weeks?), or is he more of an investor (months, years)? I’ll show you what I mean.
Personally, I also believe the dollar and US bonds are overbought. Perhaps in weeks to 6 months, there will be a correction (watch out Jan 2). However, long term I am bullish for the dollar and bonds. Europe, Japan and China are in trouble and the US is still the safe haven.
Folks like Gartman are ridiculed by their daily changes, as if that means anything. He is probably a short term trader — perhaps making a lot of money. Not knowing the entry and exit criteria someone has in mind makes it impossible to understanding their thinking.
There are massive Equity bubbles everywhere, there are massive Bond bubbles everywhere, there are massive Housing bubbles everywhere. We have the biggest army anywhere… Huge capital flows to US equals strong Dollar. Huge global debt denominated in US Dollars equals strong Dollar. Huge uncertainty equals strong Dollar. Little people of the World… You are screwed!
– I expect both the Eur/Yen & the Eur/USD to go lower from here. NOT because the US and Japan are in such good shape. I am long USD & Yen and short Euro.
– Treasuries: I expect a rally and I am long the T-bond futures.
– Weaker USD ?? What is Jacobsen smoking ?
Tony Bennett said:
Hey, now … that is MY line 🙂
The 2 years I’ve been here the one constant has been Steen saying $US going lower NOW.
The only surprise – I must have blinked – didn’t know he was a $US bull …
$USD is a safety and capital flight play–both will continue…
…except it will KILL US exporters and the profits of US corporations’ overseas sales…not to mention it will pop the housing, auto (and eventually stock) bubbles.
They cannot ultimately allow (manipulated) interest rates to rise.
Won’t the assumed rate hike be supportive of the dollar vs currencies in other countries that still have negative or zero rates? What does “The main driver of US Dollar has been “cost of capital” driven mainly by “shortage” of funding dollar” mean?
Tony Bennett said:
Quite a bit of EM debt priced in $US … as their currency tanks (paired against $US) … harder to obtain $US.
Did you ever ask Steen how his “shorting everything” bet of last February (when the S&P 500 was in the 1800’s) went ?
Worse yet, he was a raging perma bear in H1 2009.
This totally counterintuitive “Trumpflation”, ‘buy-stocks-sell-bonds-buy-junk-sell-value’ stuff has been pushed, pushed and pushed constantly everywhere as if it is some sort of unstoppable imperative.
But the underlying trends that augur for deflation, falling financial asset prices, falling interest rates, higher un/under employment and slowing profits remain firmly in place.
Tony Bennett said:
“1. Gold and gold miners
2. Short US dollar (I like the British Pound here, Brexit worries overdone, Euro risk high due to Italy and other European elections)
3. Long US treasuries (10-year or 30 year)
I have positions in points one and two.”
Total agreement. I have serious stake in #3 … good luck to Mish on his two.
I’m curious, although I would totally respect your not responding to it. You are clearly the most assertive person here about your positions, as well as clearly someone that actually trades this stuff. Do you trade currencies and interest rates as futures? Also, and even more understanding if you don’t wish to reply, what exactly would one consider as constituting a “serious stake?”
I wonder how many million, billions, trillions, (?), have been made over the years by the 1/10th of 1% doing “God’s Work” by engaging in “insider trading” with their contacts (stooges) inside the Federal Reserve ? Upon reflection, that is a really stupid question.
Because we all know the answer.
But YOU are ALL marks, playing the roulette wheel while the 1/10th of 1% is playing with HOUSE MONEY and with the best information money can buy.
…and if someone from that group tried coming here and explaining it, my bet is no one would even listen.
And, as in Vegas,,,the house doesn’t operate at a loss.
The next 3-4 years will be crappy as various unwinds begin. Could even be 4-6 for valuation resets. Just my know nothing 2c.
We will see economic weakness through 2037. Productivity gains will be overshadowed by demographic weakness. This took out the Soviet Union starting in 1979, will take out Japan next – watch the yen go back to 200-300/US$. We should see a great divide in Europe between now and 2022 – some countries will see a spike in birth rates while their economy burns (Germany/France), while others approach their bottoms before 2030.
I still like my long DXY TBT and AAPL, while short oil and gold.
There will soon be a banking crisis in China. This is why all the capital flight. Kiss the yuan goodby. US economy will also lose an important trading partner. The whole world will suffer the loss of the China growth locomotive. No place to hide. None.
In general terms, China is like the U.S. in 1930 – financial/job turmoil now, political upheaval coming. The mechanisms are different, and the rulers are likely to remain, but with greater churn, as in Tovaryishch Koba’s Soviet Union in the 1930s.
Gold a bit funny idea given fundamental story falls apart: China stops buying as India does and a lot of other Eastern nations that where said to buy more, had they higher earnings (which they have). If India or Central Banks starts selling gold net – you got an unparalleled flood. Gold had one reason to go up: 2006, 1.3 trn Chinese being allowed to buy first time. Can this repeat? No. Will gold go back to its medium price (around 700 USD)? No idea. But from all you can see it looks so much more likely. Short USD long GLD doesnt seem to work.
You seriously need an education
China or India buying gold has little to nothing to do with the price
Sentiment evidently plays a large part in the gold equation as noted in the Mish links but for me at least it is hard to disregard the effect of forced selling due to financial stress and capitulation no matter what the sentiment. In todays markets I have a suspicion that gold play is informed by profits obtainable by shorting gold miners and vice versa given that fiat is low cost and readily available to insiders to slosh around. A cynic might say that gold is just another gambling chip – but apparently still suppressed by Central Bank actions to preserve fiat privilege. We do not have free markets anymore.
Earlier this year Jacobsen forecasted weaker dollar and instead we got stronger dollar. Modta of his predictions are wrong but no one seem to care.
His predictions have actually been accurate
He has reversed course several times.
He is flexible