3 Things That Can't Stay Hidden Long: The Sun, The Moon, & The Truth

"The consensus narrative on market developments is set to implode," warns Steen Jakobsen, Saxo Bank's chief economist and chief investment officer. In his latest note, he explains precisely how to position ahead of the storm, with everything from calls on gold to German government bonds and more importantly, and their underlying rationale. As Jakobsen concludes, "Yes, the truth is often ugly, but often liberating too. We need to move away from chasing paper profit to investing in people, ideas and prospects. We should not fear the coming sell-off, but embrace and use it for creating a true mandate for change. It’s about time."


Via Saxo Bank's Steen Jakobsen,

This week saw US GDP rebound an impressive 4.0% taking the run rate for GDP in 2014 to 2.3% still shy of the ambitious 3.0% the consensus firmly believe in. Wall Street is busy selling strategies on how to hedge the coming hike in policy rates from Fed and we are, again, told how rates will explode.

This narrative will implode and shortly if I look at Saxo Bank's JABA models

Main Macro and Market calls:

  • Fixed income will outperform all assets class’ in 2014 – View established in Q4-2013. Long 1.5% Danish Government bond, Long Bunds futures, Long 10 Y USA.
  • US Dollar will sell off in H2 of 2014 – NEW VIEW. Long EURUSD and adding short USDJPY. Targets: 1.40+ and 96.00 USDJPY. Yield in US will accelerate to downside in Aug-Nov.
  • Germany will reach negative growth by Q1-2015 & France will be in recession. Euro growth reach zero again. 2014 another lost year in economics and non-reforms
  • Inflation expectations will bottom in Q4 – major buy signal for gold, silver and more importantly mining.
  • Short Dax since 10.000 - and still believe in 25-30% correction in H2-2014 as projected all year.
  • Geopolitical risk will see keep energy prices elevated – leaving the consumer with less disposable income and companies with thinner profit margins.

*  *  *
The world will see lower growth & lower yields in 2014 - yet another lost year in nonreforms and easy money.

There is no denial Q2 GDP was good, neither that the US has created more jobs (mostly parttime though), but... that the Fed is ready to take a risk and go early on raising interest denies history and even logic.

(*) The Saxo Bank JABA model is a proprietary model that uses lead and lags from multiple nbusiness & economic vectors to predict future moves.

The pink dotted line is GDP – note how is rises in Q2 only to collapse into Q1/Q2 2015 US GDP has averaged 2.0% in the last five years I don’t see it rising from this low-trend level and on the GDP I have following comments:

1.) From the 1st GDP release to the final 3rd correction the net change is on average 1.46% since 1970s – I see Q2 being 2.5% if not 2.0% offered by its third correction


2.) Tax receipt data does not confirm the uptick:


3.) US GDP has been reduced to an exercise in measuring inventories. It’s extremely volatile but also important to note they are way above their average for the last eight quarters further more in the last five years US GDP has grown 2% per year – when you exclude inventories the so called Real Final Sales even Q2’s numbers was? Yes – 2%!


4.) Disposable income continues to lag and so does housing – the two key components in the US economy.


Clearly, to me, this short-term sell-off is directly correlated to a narrative dictated by Wall Street to create trading volumes. Yes, it is a hard claim, but rest assured that next time chairwoman Yellen has a chance to show her extremely dovish credentials she will. A bigger concern for the Fed must be the fact Wall Street in its narrative almost totally ignores the wording and the text from Fed officers. Fed communication policy is failing day by day and its projections have little impact on investors.

My key call both in macro and trading remains new lows in interest rates (10 Y and above in maturity) by Q1 or Q2 2015. The high growth expectations and denial of international geopolitical risks will accelerate the move to the downside inside the next two months.

I suggest adding to IEF or simply buying more 10 Year Treasury bonds.

A new call is a weaker US dollar over the next two months. To that end I have added long EUR Sep Futures to my Alpha portfolio yesterday (31st July) below 1.3500. US data will disappoint as shown in the Saxo Bank JABA model and our US dollar model is now supporting the same outlook.

Jakobsen explains the rest in his full presentation below...

Steen's Chronicle August 2014