Correction catalysts: Jan FMS says either 1. peak growth on vaccine/virus or China (watch WTI<$46/b), or 2. peak liquidity on higher dollar & rates (watch LQD <$133).
FMS on macro: expectations for global EPS (87%), inflation (92%), higher bond yields(89%) at/close to all-time highs; Goldilocks(higherEPS & lowerCPI) has peaked.
FMS on cash & AA: cash level (3.9%) at lowest level since Mar’13 (FMS Cash Rule “sellsignal”= back-tested 1-month SPXreturn-3.2%); allocation to stocks at 2-year high,allocation to stocks & commoditie sat 10-year high.
FMS “tail risks”: #1 vaccine rollout (30%), #2 taper tantrum (29%), #3 Wall St bubble(18%); investors push back +ve macro impact from C-19 vaccine 6 weeks to late-June.
FMS “crowded trades”:#1 long Bitcoin (36%), #2 long Tech (31%), #3 short US dollar(23%); 1st time since Oct’19 “long tech”is not most crowded FMS trade.
FMS on DC: investors say Biden policy focus will be#1 healthcare (26%), #2 infrastructure (25%), #3 inequality (19%); solution to US indebtedness will be #1 higher taxation (34%), #2 inflation (26%), #3 Modern Monetary Theory (23%).
FMS on stocks: record OW in EM (2/3investors say EM top performer in 2021); record OW in small vs large cap (41%); surge in exposure to materials, energy (1st OW since Jan’20), banks, as sector allocation to tech cut to lowest since Dec’18.
FMS contrarian trades: contrarian Jan/Feb trades…long T-bills-short commodities, longUS$-short EM, long staples-short small cap.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
