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Key takeaways:

  • Before taking on the new year, we cherish the eleventh hour deals of 2020. Brexit and gridlock may not be resolved but were kicked far down the road, paving the way to recovery.
  • We sum up our outlooks for 2021 as a refresher. More short term, we are buying further into cyclicals. Welcome to the roaring 2020s.

The eleventh hour deals at the end of 2020 are worth cherishing. Politicians did what they like most: striking deals at the very last moment to excuse the imperfections of their compromises. In the case of Brexit, this was discounted during the several extensions of the haggling in December. Hence, the British pound may have rather meagre prospects given that the economic reality of the deal still has to sink in. The same holds true for the US dollar, but for other reasons – despite the budget deal. However, given the Argentinianstyle monetary expansion in the US and the Modern-Monetary-Theory approach of the incoming administration, the exodus on US dollar cash will continue and could even speed up if Democrats win the two Senate seats in Georgia this week and take over the majority in Congress.

Now, with all the past risk asset moves, we know there are signs of exuberance
Risk surveys show typical start-of-theyear optimism. Anyone who takes bitcoin as a proxy for retail investor sentiment knows about this euphoria, which has been regularly smothered in past years. Yet we refrain from becoming outright cautious at this stage. The current bull market is driven by the US dollar shifting to a bear market regime. As my technical analysis colleagues keep reminding us, currency trends can be quite stubborn. Therefore, contrarian investing can be all the more devastating.

Stay the course
Hence, in this first edition of the year, we are staying the course (you probably guessed that) and refreshing your memories about our 2021 outlook summaries. For those about to ramp up investments, we suggest cyclical exposure. Overall, just bear in mind what regime shifts can do to investments (see our number of the week). Nobody saw the 1920 frenzy coming a hundred years ago.

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