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Steen Jakobsen: US Credit Cycle Peaked, Zero Growth Coming to Europe, Gold 1425 by Year End

Saxo Bank chief economist sent a number of charts and comments that constitute his outlook for global macro fundamentals for the next 6-7 months.

Via email, the rest of what follows is a guest post from Steen Jakobsen.


Headlines for Next 6-7 Months

  • US, German and EU core government bonds will be 100 basis points higher by and in Q4 before making final new low in H1 2016. The US 10-year bond yield will trade above 3.0% and German Bunds 1.25%
  • WTI crude will hit US $ 70-80/barrel setting up excellent energy returns.
  • US dollar will weaken to EUR 1.18/1.20 then start multi-year weakness.
  • Gold will be the best performer in commodity-led rally. We see 1425-1435 by year-end.


Average Annual Inflation by Decade

Average Annual Inflation by Decade

We need to stop talking deflation and using 1930s comparison on Fed hike.


US Real Rates

US Real Rates

Real rates finally coming off in the US. Positive Gold and negative for US$?


US Germany Breakeven Rates

US and Germany Breakeven Rates

Inflation expectations rising fast.


European Growth

European Growth

European "cost advantage" is disappearing fast and furious. Enjoy the summer of growth - behind comes: zero growth, zero reform and higher inflation "expectations".


Central Bank Balance Sheets

Central Bank Balance Sheets

Excuse me? Didn't ECB start QE - in world of madness? Hard even to see change in ECB balance sheet. Japan is just not real, for that matter nothing is!


US High Yield vs. S&P 500

US High Yield versus S&P500 Index

Clearly the credit cycle has peaked.


LQD - US Investment Grade Corporate Bond ETF

LQD - US Investment Grade Corporate Bond ETF


CRY - Core Commodity Index

CRY - Core Commodity Index

Compare commodities to investment grade bonds.


Fed Hike Indicator

Fed Hike Indicator

When the FED hikes it's a margin call. There is no basis in their mandate to do hike, but their need to normalize will have data support over summer as CESI (Citi Surprise Index will mean revert).

I have been traveling like a mad man: France, UK, Croatia, Slovenia, Slovakia, Kazakhstan, Singapore, Hong Kong, Slovenia, Hungary, Czech and Netherlands. And next few weeks: London (CNBC guest hosting Friday), Switzerland, China and Japan. I have plenty to report.


Upcoming Teasers

  • CEE is the canary in the coal mine for QE
  • Mining is underowned and underpriced
  • Inflation is coming back
  • Silk Road is for real
  • Autocratic government in for hard time across Europe
  • Unfortunately still no reforms anywhere, but great clients, risk takers and media

Safe travels
Steen


Mish Comments

When Steen says there is no basis for a US rate hike, he is talking from the Fed perspective of CPI inflation.

He has commented before that the Fed may hike simply to prick asset bubbles and/or to simply do what they keep saying they will do.

I have no target for the price of gold. Rather, like Steen, I believe it is an unloved asset likely to outperform.

Finally, I have my doubts that interest rates will hit a new low in 2016, but if they do, panic will be in the air over crashing equities or asset prices in general.

 

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