Here Are Goldman’s Top Themes And Trades For 2018, So If You Don’t Get Rich That’s Your Problem, Ok?

Maybe you heard and maybe you didn’t, but Goldman’s got themselves some trade ideas for 2018 they’re pretty excited about, ok?

And the thing about these top ideas is that Goldman didn’t just pull them out of their ass. Far from it. These ideas are based on 10 “top themes” for 2018 (and possibly on input from the multitude of former employees they’ve installed in all manner of influential positions across the globe). See that’s how this works. You decide what the “themes” are going to be and then you decide how to trade on those “themes.”

Obviously there’s some sarcasm there, but Goldman’s commentary on how some of the themes are likely to play out and why is pretty interesting and we’ll hit some of the high points there later. Right now, we’ll just run down the list for you.

Something you should know about Goldman’s top recos is that they don’t always pan out. Of course batting a thousand is impossible for anyone save maybe Chuck Norris (who bats two thousand), so you know, give Goldman a break if these don’t work out exactly like the bank thinks they will.

Even Goldman sometimes gets stopped out immediately (which, when it happens, lands them in the crosshairs of cynical bloggers who worked at bucket shops and wouldn’t be allowed anywhere near 200 West) and sometimes they hit it out of the park, but either way, it’s going to be fine because everyone over there is making at least $300,000 a year.

Without further ado, here are Goldman’s top then “themes” for the new year:

  1. Global Growth: Stable and Synchronized
  2. DM Monetary Policy: No Motive for Murder
  3. Drawdown Risk: Bear-Market Warning Signs
  4. Emerging Markets: More Room for Growth
  5. China: A Well-Managed Slowdown
  6. Global FX: Soggy Dollar
  7. US Policy Risks: If It Rains It May Pour
  8. BondTerm Premia: Gradual Normalization
  9. European Risk: Preparing for a Post-Draghi Euro area
  10. Late-Cycle Imbalances: Illiquidity Is the New Leverage

And here are the top trades:

  • TopTrade #1: Position for more Fed hikes and a rebuild of term premium by shorting 10-year USTreasuries.
  • TopTrade #2: Go long EUR/JPY for continued rotation around a flat Dollar.
  • TopTrade #3: Go long the EM growth cycle via the MSCI EM stock market index.
  • TopTrade #4: Go long inflation risk premium in the Euro area via EUR 5-year 5-year forward inflation.
  • TopTrade #5: Position for ‘early vs. late’ cycle in EM vs the US by going long the EMBI Global Index against short the US HighYield iBoxx Index.
  • TopTrade #6: Own diversifed Asian growth, and the hedge interest rate risk via FX relative value (Long INR, IDR, KRW vs. short SGD and JPY).
  • TopTrade #7: Go long the global growth and non-oil commodity beta through long BRL, CLP, PEN vs. short USD.

More specifically:

Go short 10-year USTreasuries with a target of 3.0% and a stop at 2.0%

GS1

Go long EUR/JPY with a target of 140 and a stop at 130.

GS2

Go long EM equities through the MSCI EM Index with a target at 1300 (+15%) and a stop at 1040 (-8%).

GS3

Go long EUR 5-year 5-year forward inflation with a target of 2.0% and a stop at 1.5%.

GS4

Go long EM USD credit through the EMBI Global against US High-Yield credit through the iBoxx USD Liquid HighYield Index, with a 1.5×1 notional ratio, indexed at inception to 100, with a total return target at 106 and a stop at 96.

GS5

Go long an equal-weighted basket of INR, IDR, KRW against an equal-weighted basket of SGD and JPY, indexed at inception to 100, with a total-return target at 110 and stop at 95.

GS6

Go long a volatility-weighted basket of BRL, CLP and PEN (weights of 0.25, 0.25 and 0.5) against USD, indexed at inception to 100, with a total return target of 108 and a stop at 96.

GS7

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2 thoughts on “Here Are Goldman’s Top Themes And Trades For 2018, So If You Don’t Get Rich That’s Your Problem, Ok?

  1. Several of these I have already started averaging in to, e.g. the short Notes and Bonds – and I have the same collar going forward. However, now that I see GS is promoting some of these I am re-thinking how much to allocate – may just take the other side of a few of these and know I’ll be playing on their team.

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