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Webinar with Chief Economist and
CIO, Saxo Bank, Steen Jakobsen
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Housekeeping
This webinar will run for 40 minutes, inclusive of questions.
Please ask questions at any time. Where we can, we’ll answer them as we go.
This webinar will be recorded.
Please take the time at the end of the webinar to complete our feedback questionnaire.
This webinar contains general advice only and does not take into account your, or anybody else's, investment objectives, financial situation or needs. Please see the full disclaimer on our website www.rivkin.com.au.
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About the presenter and host
Steen Jakobsen
Chief Economist and CIO, Saxo Bank
Oliver Gordon
Global Investment Director, Rivkin
Deflation: The Elephant in the room for the AUD housing boomAustralia, November 2015, Saxo Bank A/S
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How bad is it?
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Macro core view
One Trading view:
Fixed income will outperform all assets. 10YR US <1.50% by Q2/Q3 2015
One Economic view:
Dis-inflation/deflation will be catalyst for asset sell-off
One Timing view:
Q2/Q3-2015 low in this cycle for ALL indicators
One guaranteed view:
Volatility will go SIGNIFICANTLY up….
A simple man’s view of the world
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Our biggest call: Yields will go to new lows..
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Watch November for big drop in US Yields
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Low point getting closer: Q1/Q2 2015
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Low point getting closer: Q1/Q2 2015
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The Economic Bermuda Triangle
Steen Jakobsen’s Economic Theory – Where is my Nobel Prize?
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80/20-Principle
The Pareto principle (the law of the vital few, and the principle of factor sparsity) states that, for many events,
roughly 80% of the effects come from 20% of the causes.[1][2]
• 80% of all credit given to 20% listed companies and banks• 20% of population owns 80% of wealth• 80% of all jobs comes from Small-and Medium Sized companies• 20 mio. SME’s in Europe alone (27 mio. in the US)• 20 mio. people now unemployed in Europe • 80% economy needs growth to sustain 20% • 80% return in SME’s vs. 20% in big companies next 5 years?• ”Betting” on 20% will lead to 80% chance of Japanisation
Where does growth go from here?
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European recovery – Where?
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2015 also a total loss for growth?
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No defaults, no growth and no inflation means?
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Minsky moment
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Final Notice: Credit is 75% of growth
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Deflation: The death of status quo
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US: Disinflation to deflation?
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US: Disinflation to deflation?
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Inflation at low level = Economic damage
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ECB – final round with Draghi and easy money?
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The deflation ECB didn’t believe in…
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ECB keeps talking (& dreaming)
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Why are we copying Japanese model?
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Australia:A one trick economy
with outsized risk
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Low interest + negative gearing = Housing boom
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Private debt out of control?
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RBA caught out
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RBA caught out
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One: don't be surprised if the Reserve Bank of Australia cuts the official cash rate to 1.75 per cent, down from its current record low level of 2.5 per cent. OK market moved from confidence of higher to unchanged
Two: there's more chance of him being selected to play football for Denmark than the official cash rate rising. Still not playing for DKK
Three: the Australian dollar might have a run up to US95¢ or US96¢ in the short term but by the end of the year it will be closer to US80¢. US91 to US86 and market was looking for US100
Four: stand by for some clarifying comments from the governor of the RBA Glenn Stevens following his remarks last week on the Australian dollar. As expected
Five: the Dow Jones could fall as much as 30 per cent from its peak. Not yet ECB & BOJ have delayed move
Six: China will grow at 5 per cent not 7 per cent See chart – its 5%Seven: the US Federal Reserve will soon be forced to taper its own tapering program. Ouch didn’t get that one right
Seven points on Australia(March 2014)
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One: Reserve Bank of Australia cuts the official cash rate to 1.50 per cent, down from its current record low level of 2.5 per cent. (AUD bonds remains best investment vehicle through Q22015)
Two: there's more chance of him being selected to play football for Denmark than the official cash rate rising in the AUD and US
Three: the Australian dollar could see 80¢ in the short term but by the end of the year 2015 it will be closer to US90/95
Four: Housing market will test solidity of Australian banking system – New harsh regulations by Q22015
Five: Australian stock market will fall as much as 25 per cent from its peak in 2015 (Driven by sell off in banks by 30/40%)
Six: Commodity prices will bottom out in Q2/Q32015
Seven: Global inflation will spike in Q42015 leading AUD growth
Seven NEW points on Australia(November 2014)
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China and JapanAt opposite ends?
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JAPAN QE Desperado – a very imprecise weapon
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China is 5% growth next five years….
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Markets and RISK
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US Real economy leads S&P?
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End of US supremacy?
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Positions:• FI: Long US Fixed income – Sub 1.5000 in Q1/Q2• FX: Short AUD, Short BRICS• Equity: Neutral (25% allocation)• Commodities: Short: Copper, Iron Ore vs. Long Aluminium
•Monetary Policy:• ECB: Deflation running away from ECB / No full blown QE possible• BOJ: QE Infinite – what’s retiring deb? Desperation• FED: Tapering will finalize. New expansion of balance sheet H2-2015• China will continue to slow – response?
Predictions 2015:• Recession in Germany(Euro area) & Near recession in the US• Inflation: Low in ‘inflation expectations’ by Q1• 2014 peak in US Dollar – 2015 US dollar will start secular weakning• Small cap + SME’s will outperform 20% segment by 10%• BRIC’s will collapse on non-reform
Macro Outlook in headlines
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Outragous Predictions 2015
DRAFT
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OP-2015
DRAFT• UK House prices to drop 20%• Draghi leaves ECB and becomes Italian President• Russia goes bankrupt• Biggest Vulcano eurupts –Bárðarbunga – Cancel summer?• Japan in recession• Corporate bond spreads explodes higher• CNY devalues• Australian Banking sector needs restructure on mortgage
exposure
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Thank you
Thanks for attending our webinar! We trust you found it useful and enjoyable.
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