“The 4 deflationary “D’s” of excess Debt, financial sector Deleveraging, aging Demographics and tech Disruption have induced wage inequality and insecurity, as well as the rise in political populism across the western world.
The current bear market in commodities, credit and stocks represents either a healthy reset to growth and profit expectations, or is a harbinger of recession. Our tactical asset allocation advice remains "long cash" until the "4C’s" (China, Commodities, Credit, and Consumer) improve.
There are echoes today of the period leading up to the 1985 Plaza Accord (pro-growth policy coordination spurred by weak growth, macro divergence and rising protectionism in the US). Upcoming G20 meeting in Shanghai offers an opportunity for policy makers to seize the “expectations” initiative via a one-off China devaluation, moves to stem EM contagion including a commitment to a stable US$, and pro-growth fiscal initiatives. 2016 risk is markets need to “panic” first.”
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