Things to watch in 2019 – The year ahead in six themes.

Back from the Christmas break, refreshed and decompressed, this week we’ll be taking a look at what’s in store for 2019 – a year full of challenges, and therefore opportunities.

We’ll write on one of the major themes for the year ahead, and at the end of the week, we’ll resume the weekly inflated opinions.

The year ahead in a week, one day and a theme at a time.

In coming days we plan to write on one of the major themes we see as important for markets this coming year. The plan is as follows;

Brexit – May Day, May Day in January

While too much has been said or written about Brexit already (especially by us!) the mere fact that the vote on PM May’s deal takes place (hopefully) tomorrow, it’s important to take a rain check on where we are. We remain convinced this is a major, perhaps even systemic, issue for markets and economies, as we side into the “buzzer” at the end of the formal 2 year negotiation period.

Fed policy – the pause that nurtures the teenage bull

With the Fed already several hikes (and many billions in portfolio run-off ) down the road to policy re-alignment, it’s natural for a new Fed Chair to consider a pause for reflection. Especially with financial markets doing most of the work, tightening financial conditions and reminding both market and economic participants alike, that the cycle hasn’t been repealed.

Financial markets and the credit cycle – Are we there yet dad?

Markets have been taking centre stage since the vol-ruption nearly a year ago, and while realized volatility has indeed increased alongside implied, options markets Vix-volatility, many have taken this to mean the end is nigh and all manner of skies are about to fall. This may be true, but there is another, orthogonal perspective which we describe here.

 US/China Trade relations – China syndrome?

That we’re still discussing the US/China relationship, especially the trade front, should not be a surprise. What is a surprise is the one-dimensional perspective commentators take. To us, this is nothing like a conventional trade war, and instead is the predictable “conflict of self interests” that the two superpowers have been on a path towards. While many wonder which “nuclear core” will burn down through the Earth first, few recognize that it’s precisely these risks that offer the greatest chance that detente will remain the steady state. Thucydides and his trap,  will have to wait.

Europe – I don’t have to outrun the bear – I just have to outrun EU

It’s been far too quiet in Europe since ECB head Draghi stated that he’d do anything to prevent the end of the European project. Well, he leaves in October, and the race to secure his replacement looks set to be fought alongside several quite systemic challenges, one of which being the end of the formal Brexit negotiations. We’ll explore each of these challenges, and ask, will Europe finally be caught by the bear?

The return of idiosyncratic risks – often the canary in the coalmine

While everyone knows that WW1 was triggered by the assassination of the Arch Duke Ferdinand by Serbian nationalist      , it’s remarkable that many often forget the triggers for great financial crises. Much is often written about the underlying cause (always a bubble of some sort) and the true culprits, but often the names and events that led unto the crisis, are forgotten. Each of these true culprits, amounted to idiosyncratic risks that seemed at the time far from systemic, and the losses contained.

As ever, merely inflated opinions, and do not constitute investment advice

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