MACRO ASSESSMENT - ASSET SELECTION
MACRO ASSESSMENT:
- The larger global macro theme hinges on the Fed's continued hikes and deteriorating global cohesion theme.
- U.S. economy will be in a sharp slowdown next year,
- Key macroeconomic shift will be the end of outsized American economic out-performance -- U.S. growth seen at an annualized rate of just 1 percent by the third quarter of next year,
- An American slowdown, and consequent pause in Federal Reserve tightening at some point in 2019, would offer emerging markets a respite from the pressure posed by Treasury-yield and dollar gains this year --
- “Potential for Asia to bottom in 2019,” -- one of the few silver linings.
- A pick-up in global inflation will keeps monetary tightening intact,
- Cash, now returns more than the pace of inflation in the U.S.
- A Fed pause won’t offer much relief for American markets given a trend of faster inflation that would limit the central bank’s ability to shift gears entirely.
ASSET SELECTION:
- The bear market is mostly complete for EM, has further to go in U.S. credit and is about to begin for the U.S. dollar,
- Stocks outside the U.S. will do better than their American peers
- Get out of credit - Leveraged corporate securities will get hit hardest - advised a 5% underweight allocation to credit relative to benchmarks.
- Stock up on cash,
Cash, now returns more than the pace of inflation in the U.S.
- Head to emerging markets,
- Value should beat growth in stocks,
- Treasury yields should converge with euro-zone counterparts
US government 10yr yields, a breakdown below 3.05% would open the door to 2.91%:
- Rising default rates will put strains on BBB-rated corporate debt
- Brent crude should get back to $80 a barrel by the end of 2019 -- still below its highs of last month -- though “much depends on December’s OPEC meeting,”