* Too much, too young
Annualized gains in global stocks of 21% & the US dollar of 30% YTD are too high. The max liquidity/minimal rate backdrop remains intact. But no-one is positioned for the US consumer to stay weak, European rates to rise & Chinese producer to strengthen. Credit markets are not validating the stock surge (Chart 1)
* Retreat & rotate
Volatility, cash, & gold are likely to perform well short-term if as we expect the dollar & stocks pullback, a risk-off signaled by moves toward 2% on Italian 10-year bonds, 20 on VIX and 2000 on SPX in Q2. In addition, some further defensive rotation toward EM & energy seems likely.