Macro

(New York)

We are rounding home towards 2018 and with that in mind, Goldman Sachs has published its top trade ideas for the new year. Goldman’s overall mantra for 2018 is “Late-cycle optimism”, and its seven trade picks all stem from that notion. Goldman’s bets are not very US-centric, and include shorting ten-year US Treasuries in advance of four rate hikes in 2018. It also says to go long the Euro, and emerging market credit (it is not favorable on US credit). Asian currencies will also do well, while metals seem like a good bet on the back of a strong economy.


FINSUM: This gives a good approximation of Goldman’s views, but we feel they are slightly over optimistic. Although the tightening cycle in the US may emerge.

(New York)

A lot of people are worried about a big market fall, but what would get us to that point? While there was a big warning out of China last week, the most realistic catalyst for a bear market seems like a US recession. Well, the ten-year Treasury, a historically good indicator of economic direction, is signaling that a recession very well may be on the way. According to JP Morgan’s head of fixed income at JPM Asset Management, the ten-year yield should currently be over 3% given this stage of the economic cycle, but it is currently pinned at only 2.3%. “Under the surface, growth has picked up globally and inflationary pressures have picked up, but you aren’t seeing the 10-year rise a lot”, says JP Morgan.


FINSUM: An inverted yield curve is a big warning sign for the economy, and while we aren’t there yet, weak ten-year yields are troubling in an otherwise bullish environment.

(Beijing)

These comments were a real eye-opener for us and they should be for all investors. While the Chinese central bank, or the PBOC, is usually quite tight lipped in commentary, the bank let out some worrying statements this week. The PBOC thinks the market might be ready for a so-called “Minsky” moment, or a flash crash that comes when markets nosedive under the weight of huge buildup in debt. The bank was specifically talking about Chinese assets, and the comments, which came from the PBOC’s governor, seem to indicate that the bank thinks China’s economy is on an unsustainable path.


FINSUM: We have been saying for weeks that markets will need a catalyst to start a big correction or bear market, and a full-blown China meltdown would surely do it.

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