Global View 2018 Risks What Could Go Wrong An Overview December 2017
2018 Risks - What Could Go Wrong? An OverviewFor 2018, we believe more in a 'soft' rather than a very weak US dollar. The Euro should be strong; the Yen flat, and sterling potentially the surprise currency with an upside shot at US$1.50/£. Liquidity cycles are out-of-step, with capital likely flowing out of the 'late-cycle' US. Emerging Markets and Commodity prices are likely to remain firm and bonds vulnerable to a 3.5% US 10-year Treasury yield, with a persistently strong Chinese economy providing all round support. Odds of a bear market in World equities crucially depend upon the speed of reversal of capital flows out of the US dollar. A more rapid outflow of the US$3 trillion of recently accumulated funds poses a more potent threat to investors that the slated US$400 billion in 'reverse QE'.
CrossBorder Capital Ltd (CrossBorder) is a London based, FCA registered, independent investment firm founded in 1996. It is owned by its partners and has no affiliations with banks, stockbrokers or other financial institutions.
CrossBorder's core competence is the measurement and analysis of global liquidity flows. Liquidity is a source of funds, in contrast to money which is a use of funds. It is defined as the flow of cash plus credit, or more explicitly as savings plus the change in base money plus the change in bank credit. Liquidity is therefore a more comprehensive measurement of fund flows than the monetary aggregates used traditionally. Liquidity research is applied to determining the outlook for a range of asset classes including equities, fixed income, currencies and hedge fund styles over varying time horizons.
Central to this analysis is the monthly collection and analysis of balance sheet data from over seventy of the world's central banks to quantify the level and direction of liquidity in each country. This data is publicly available, aggregate as opposed to sample, and rarely significantly revised. It is also little used by investors, and CrossBorder's prime utility is bringing this set of data to investors in a timely and user-friendly way.
CrossBorder's insights rest on two philosophical assertions: first, there is a regular cycle of liquidity, and asset class price movements tend to move sequentially over the cycle. By measuring where we are on it, we can significantly reduce 'fat tail' outcomes in our predictions for asset price movements. Secondly, weightings of asset classes held by investors in aggregate tend to revert to the long term mean. By measuring the variance from this mean, we can understand whether a particular trade is 'crowded' or the reverse.
CrossBorder offers these insights both as the Liquidity Research research service, and in the form of systematically allocated in-house funds. Clients of the Liquidity Research service include leading banks, fund managers (both traditional and hedge) and insurance companies located worldwide. CrossBorder additionally manages and advises on tactical asset allocation products for third parties.
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