The Icarus Trade
We stick with Icarus Trade targets: SPX 2500, GT30 3.5%, DXY 110, oil $70/b; best trades = long NKY, CAC, RTY, banks, energy, short US rates, EM, REITS; yes risk assets overbought, yes sentiment bullish, yes easy money made, but we think March Fed hike into strong data will initiate final melt-up, capitulation into risk assets.
The Humpty-Dumpty Trade
Fed has hiked just 2 times past 10 years; on March 15th Fed likely tightens 2nd time in 3 months. The “great fall” in risk assets comes when hawkish Fed & weaker EPS (Chart 1) combine in H2. Note once Fed tightens they keep tightening until “financial event” (USGerman rate differentials already at 28-year highs!)…buy long-dated puts.
The Joe Six-Pack Trade
2017 global policy theme is “Economic Nationalism” (Trump, May, Putin, Le Pen…); success means higher inflation, as well as higher interest rates. We remain bullish Joe Six-Pack assets (EAFE, value, banks, TIPS); infrastructure & defense = good fiscal stimulus alternatives if tax reform diluted/delayed by Obamacare repeal.