Government debt - the ignored risk.

* Although markets have recently been reminded of the dangers of too high government debt, it is not really viewed as a major risk.

To some extent, this makes logical sense. After all, last year governments and centralbankers coordinated their efforts in taking on debt on a massive scale and it worked, right?
It sure did. For the markets. Shortterm. From here though, there is not a lot of room to take on more government debt. Rather the opposite. The build up has been massive. Still though, the private sector is struggling with high unemployment, low growth, weak corporate balancesheets and a still highly leveraged household sector as well as a mixed realestate world, where some realestatemarkets have not really adjusted as of yet.

To top it off, the creditplug is still in place.


On the positive side, the patient is out of the hospital, but still high on drugs. Whether everything actually works as it should it far from certain. However, the patient viewed as if this is the case.

Against this background, I am focusing on macro fundamentals to get it right. I suggest will likewise have a sovereign theme to start off the year.

Hence, NOK and CAD should be preferred, GBP, EUR, JPY, ZAR and NZD should not. Although in the ZAR and NZD case, the yield factor will likely be counterproductive to such position in a low volatility environment.

China´s and India´s PMI rises to 56.6 and 55.6 respectively will support the stockmarkets. However, this will also drive expectations of Asian rate rises. This in turn will affect US rate hike expectations. Which in turn will generate expectations of a stronger USD in order to compensate for undervalued Asian ones. This could tip the stockmarket lower,,,,,,,


* The US ISM number should be under scrutiny today. A strong one will likely drive US yields higher still, dragging the Usd with it. I view the last two weeks low correlation between the USD and equities as temporary due to year end flows. A strong Usd from here should weigh on equities.



As usual, good luck







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