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.

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,”