120419 Base Case

#1.  Our base case is that "fear" noise levels mask a more bullish (relative to the expected outcome of "fear noise levels" for risk in general and anti-dollars in particular).

Potential crises:

• #1.1  EU sovereign debt --> Spain --> EURO to ZERO (taking anti dollars along on the ride down)
• #1.2  China economic slowdown --> hard landing --> AUD to ZERO (taking anti dollars along on the ride down)
• #1.3  Global economic slowdown --> crisis for EU --> EURO to ZERO (taking anti dollars along on the ride down)

#2. The other aspect of our base case is that instead of a "fear driven" USD rally we can expect a USD rally in response to "positive economic growth indicators from the US".

• #2.1  The big question is:  Will the US economy beat the Fed in terms of its sustainable out performance and return to a real normal growth speed sooner than what the Fed said ("2014, maybe").  (In order to return to the normal ('good') growth speed it will have to over shoot on the upside.  The whole point then is that short term data that overshoots will in typical "dumb down" market style be extrapolated to mean, this is a trend and they will run away with this idea.)
• #2.2  We think the process will be as follows:
• Convincing data --> USD UP --> Indications no further QE --> USD UP --> Interest rate hike expectations UP --> USD UP followed by the actual happening of these expectations (sustained good data --> definitely not further QE --> actual tightening of interest rate conditions (this will lead hikes with a few months).