* 3 big shocks in Q1 but risk-on
Dollar shock, policy shock (25 rate cuts), EPS shock. 3rd consecutive quarter of loss for bonds & commodities, 3rd consecutive gain for US dollar. Extension of Max Liquidity, Minimum Growth narrative in Q1 allowed risk assets to rally modestly.
* US bear view requires tech-wreck
Q1 AA total returns: stocks +2.4%, bonds -1.7%, commodities -4.9%, US dollar +9.0%. Stocks nonetheless extremely resilient, most particular those relating to Silicon Valley's boom: the market cap of US Tech & Biotech is now $4.2 trillion, thus exceeding that of the entire Euro-area ($4.1 trillion) and also that of all Emerging Markets ($3.9 trillion).
* In Q2 risk-off
...expect some reversal in US dollar (watch DXY 95), bear market rally in commodities, resources, EM. Volatility (or cash, gold) remains "buy in dip" trade in '15. Biggest Q2 call: US GDP Big (>3%)...Fed hikes get priced-in; small (3rd consecutive quarter not much above <2%)..."secular stagnation" back in play. Either
way volatility wins.
* Europe to China
Europe GDP probably outpaced US GDP in Q1. EU positioning, policy, profit cycle all bullish. China stocks surging as commodities collapse shows bull case for China is liquidity not growth. Has rallied hard but global capital likely to continue to frontrun China easing.