Get ready for the reflation trade...
Chris Watling from London-based Longview Economics has been a vocal bear for some time and recently called for an Australian recession. The real question now though is what can investors do with this information? We asked him and his responses were quite surprising.
Chris, who also argues that the Fed needs to cut rates, told us “I think there is probably one more chapter in that - one more leg down - then come the middle of the year, I think one wants to start thinking about a reflationary trade”. Watch this snippet from our recent shoot with him, in which he explains why it will soon be time to switch to equities.
We've been conservative on what I call a strategic basis, like a 12-month view, really since the middle of last year. I think there is probably one more chapter in that, one more leg down.
Then, come the middle of the year, I think one wants to start thinking about a reflationary trade.
And it all depends on whether these bubbles have burst that we talked about earlier. If the central banks caught them, then great, if they haven't, we have a serious problem beyond the next few months.
Assuming they have, then actually, you look for the turn, you look for the reflation trade in the second half, which means you go out of bonds back into equities.
We like gold as well. Gold has been an interesting trade for a while. I think that's attractive particularly since I think the fed will cut rates and I think bond yields go lower in the near term.
You get a lot of sector allocation out of that sort of mix. It falls out of the equation if you like.
That would be the main sort of thing. I think defensive for the next quarter, and then reflationary from there on out".
You can access all of Chris' recent commentary and research, including his research paper on Australia, by clicking here.
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