Fra Sten Jakobsen Saxo Bank:
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
