Asset Allocation: Defensive Stance

As mentioned before, I expect government bond yields to fall during summer whereas risky assets should correct lower. In turn I recommend a defensive asset allocation stance for the next weeks. Inflation fears should subside whereas default worries will increase again.

Government bonds: Long duration
Equities: underweight, especially in cyclicals/consumer durables/financials&commodities
Currencies: overweight USD & JPY. Neutral on CHF. Underweight EUR, GBP and commodity-currencies.
Credit: Neutral to moderately underweight credit overall. Within credit overweight higher-rated non-cyclicals (for example utilities) across the curve vs. lower-rated cyclicals.
Commodities: Underweight, mainly energy and base metals but also Gold.
Cash: Overweight

I do not expect new lows in the major equity indices but think that a 20% correction from the recent highs would be in order. Credit should also re-widen a bit (due to rating downgrades and rising defaults), but this should be more the case for lower-rated credit, i.e. increased differentiation.
I think that commodities have run a bit too far. With world economic growth being negative, end-demand for commodities should be lowered as well. I think that a lot of the run-up in prices has for one been due to speculative demand (especially in oil and gold) but apparently also down to stockpiling in China (especially in Iron Ore, Copper and Coal. See here). To me both look unsustainable and we therefore risk also a significant setback in commodities.
Gold is a bit a different animal as it is said to profit from both, inflationary expectations as well as (a deflationary) deepening financial crisis. However, in an environment where systemic risks should have been moderating a bit whereas nominal growth remains tame, I fail to see a significant upside for gold in the next weeks and would look for another drop in prices.