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%)

Currency Overlay

  • 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.

Macro Backdrop

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

Mish Comments

If Steen is correct, and I believe he is, this is how I would rate the standout ideas:

  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.

Mike “Mish” Shedlock