Global

The complete annihilation of all human life represents the mother of all tail risks. We estimate that there is a 50% chance that doomsday will occur by 2290, and a 95% chance that it will occur by 2710. If the risk of doomsday is elevated, what is an investor to do?

If the Fed convinces markets it is on track to lift rates this year and a couple of times next year, we expect a 10% appreciation of the USD over the next 12 months. This would be extremely bearish for commodities.

Recent shifts in the Fed's policy stance are bullish for the dollar, negative for commodities and emerging markets, and positive for assets with a yield. They also suggest risk assets will continue to perform decently.

Given the rising odds of another Fed move before year-end, and the uncertainty that additional easing can be delivered in Europe and Japan, we re-iterate our tactical call to maintain a below-benchmark duration stance.

In August, the model outperformed the S&P 500 and global equities in both USD and local-currency terms. For September, the model increased its allocation to cash and trimmed its exposure to equities.

The post-Brexit rebound has pushed stocks into overbought territory. U.S. equities, in particular, look increasingly priced for perfection. Higher U.S. rate expectations will push up the dollar, further curbing S&P 500 profit growth. Share buyback activity and dividend growth are slowing, while U.S. election risks are likely to rise. Go short the NASDAQ 100 futures as a tactical hedge.

Gold stocks have been pummeled since we recommended booking profits on our overweight position on August 1. While the cyclical backdrop of policy and political uncertainty, rampant debt growth and negative interest rates are bullish for the yellow metal, tactical froth remains to be wrung out. The chart shows that flows into gold ETFs have been very aggressive this year, and speculative positions are running hot. Meanwhile, the relative gold share price ratio had reached extraordinarily overbought levels, and overheated conditions have barely been dented by the recent pullback. With the Fed talking tougher, the risk is that any premature tightening in financial conditions through a stronger U.S. dollar will continue to weigh on gold shares. We recommend staying on the sidelines for a while longer and will look to reestablish overweight positions once tactical downside risk has been expunged. bca.uses_in_2016_08_26_001_c1 bca.uses_in_2016_08_26_001_c1

A Fed rate hike by December could erode the slowly evolving fundamentals favoring base metals.

Investors are being forced into riskier asset classes by the TINA effect, but the gaping macro disequilibria makes it difficult for investors to see how we move back to equilibrium in a benign way. Monetary policy on its own is limited in its ability to soften the adjustment, but the good news is that the political pendulum is swinging toward fiscal stimulus.

Commercial real estate and REITs have benefited greatly from accommodative monetary policy. Though they are approaching a peak, our analysis shows that they remain in a "goldilocks" scenario and still offer plenty of upside.