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Outlook for 2018: You Can Get What You Need

By: KKR & Co. L.P.
Harvest Exchange
January 19, 2018

Outlook for 2018: You Can Get What You Need

Henry McVey, KKR’s Head of Global Macro & Asset Allocation Team (GMAA), has released its latest Global Insights piece Outlook for 2018: You Can Get What You Need.  As we are poised to enter the 104th month of economic expansion amidst the second longest bull market on record in the United States, it is definitely harder to get ‘what you want’ when it comes to uncovering new and compelling investment opportunities. Credit spreads are tight, margins are elevated, volatility is low, and valuations are full in many instances. We are also adding stimulus to the U.S. economy at a time when it probably is not needed. The good news, however, is that our work shows that investors can still ‘get what they need’ in order to generate returns in excess of their liabilities. A major underpinning to our global macro and asset allocation viewpoint in 2018 is that the current investing environment in many ways increasingly feels like the late 1990s. Specifically, across many of the asset classes in which we invest on a global basis, it appears to us that overly optimistic investors are currently overpaying for growth and simplicity in many instances, while at the same time ignoring stories with complexity, uncertainty, and/or cyclicality. Therein lies a huge, long-tailed investment opportunity to arbitrage the notable bifurcation that has already begun to occur across many parts of the global markets, we believe.

Key Macro Takeaways

  • Our Asset Allocation Work Still Points to Equities Over Credit in 2018
  • Stay Long: Our Emerging Markets Model Suggests that We Are Now Moving Towards Mid-Cycle, Despite Our View the Dollar Might Bounce at Some Point in 2018
  • New Macro Theme: Get Long Central Bank Normalization
  • Notable Change in Our Thinking: Shifting Preferences in Private Credit
  • Continued High Conviction Theme: Buy Complexity, Sell Simplicity
  • Continued High Conviction Theme: Experiences Over Things
  • Continued Theme: Our Paradigm Shift Framework Still Suggests a Different Kind of ‘Political Bull’ Market Has Arrived
References to “we”, “us,” and “our” refer to Mr. McVey and/or KKR’s Global Macro and Asset Allocation team, as context requires, and not of KKR.
The views expressed reflect the current views of the writer as of the date hereof and neither the writer nor KKR undertakes to advise you of any changes in the views expressed herein. Opinions or statements regarding current events or trends are based on current conditions and are subject to change without notice. The views expressed herein may not be reflected in the strategies and products that KKR offers or invests, including strategies and products to which the writer provides assistance with or on behalf of KKR. It should not be assumed that the writer has made or will make recommendations in the future that are consistent with the views expressed herein, or use any or all of the analyses described herein. Further, KKR and its affiliates may have positions (long or short) or engage in securities transactions that are not consistent with the information and views expressed in this document.



Originally Published at: Outlook for 2018: You Can Get What You Need