If the ECB will not take the hint, JPM will bring the mountain to Mohammed. Or something. In a note just released by JPM's Colun Fenton, the firm has downgraded the entire commodity complex to "underweight" (yes, that includes gold). The reasoning? It is all the Supercommittee's fault. It also likely has nothing to do with the fact that JPM was selling commodities to clients all through this run up, and is now in finally buying, in anticipation of ECB printing and Fed's LSAP. Full report attached.
- The US Supercommittee’s failure changes risk outlook: the primary implication is damage to confidence in the US’ seriousness of purpose and the cost of that attitude. Markets must price risk of more credit rating cuts.
- US public debt is $15Tn (100% of GDP) and growing: Since S&P cut the US sovereign credit rating four months ago, the US public debt has grown by $455Bn, an amount larger than Greece’s sovereign debt.
- Industrial metals and softs are deteriorating rapidly: incremental damage in physical metal and crop prices has unfolded worldwide since
Thursday, when it became clear the Supercommittee would likely fail.
- Change in view: Policy failures in the US and Europe have darkened the 6M outlook, forcing us to downgrade commodities to underweight. We expect outright TR losses near-term and see greater value in bonds