Courtesy of Mish.
I received an interesting email the Wednesday before Thanksgiving from Steen Jakobsen, chief economist for Saxo bank, regarding his macro picture of the world.
I purposely delayed posting it until now so more would see it than during a holiday-truncated week.
From Steen …
Simple Man’s View
- One Trading View: Fixed income will outperform all assets. US 10-Year treasury yield will drop under 1.5% by 2015 Q3
- One Economic View: Disinflation/deflation will be catalyst for asset sell-off
- One Timing View: Q2/Q3-2015 low this cycle for all indicators
- One Guaranteed View: Volatility will go up significantly
Core Trading Views
10Y Bond yields(US) will continue lower into Q2-2015. I see acceleration to down-side and mainly in the US where 10 Y could hit 2.00% and bottom out at 1.5% by Q2 as GDP comes off relative to “lift off” consensus.
European factors: Lower than anticipated growth in Germany (China rebalancing, lower US current account deficit and EZ overall) – Impact from Russia crisis only beginning to impact real economy and of course the deflation which ECB promised us would never happen.
US factors: Energy sector moving towards default and closing down capacity – subtracting 0.3-0.5% from GDP plus lackluster housing market despite record low mortgage rates plus contraction in monetary aggregates.
China: Despite Reserve Requirement Ratio (RRR) cut the economy is already at 5.0% in real terms and without reform in health care(why people save money), competition (anti-corruption) and deeper capital markets, the marginal change will continue to be negative.
Emerging Market: Strong US Dollar is the last thing the EM market needs. It’s a de facto tightening of monetary policy at a time where “export markets” continue to weaken.
The world is barely surviving at an average yield of 1.5/2.0%. We have two drivers of growth: US and Emerging markets (EM). EM is under pressure as we end 2014 forced into the defensive by lack of reforms, but also a much stronger US Dollar, which means the “mean-reversion” trade is for 2015 is for a weaker US dollar to rebalance towards EM growth as the path of least resistance.
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