Icarus Unleashed…Fed Unleashed
The FAQs of Life
What is consensus?
Bullish credit & equities, “Goldilocks” conviction, no fear of the Fed/ECB/BoJ,
expectations for a “good” rise in bond yields, mean reversion is dead.
How & when will the Icarus melt-up in risk assets end?
With peak Positioning, peak Profits & peak Policy stimulus; we’re close but expect SPX
>2670 first; then a >10% pullback in risk assets (e.g. SPX 2670 to 2400) in Q4/Q1.
What is contrarian & what are the “pain trades”
Long recession, long inflation, long bubble; best recession trade…long GT30, short HY;
best inflation trade…long CRB, short CCMP; best bubble trade…long Vol, CCMP, BKX, EM.
What’s the biggest risk?
Era of excess Liquidity & Disruption ends with tech & credit bubble (Chart 1): tech
disrupts wages…bond bear capitulation sends 30-year UST toward 2%...Nasdaq surges
toward 10,000…HY spreads drop 100bps; Icarus “unleashed” means 2018 defined by
aggressive Fed tightening and hostile War on Inequality & Occupy Silicon Valley politics.