Note Précis June 26, 2020 – Mind The Gaping Hyperbole:

Note Précis June 26, 2020 – Mind The Gaping Hyperbole: We would mind the gaping hyperbole and not just from politicians, where it is a stock in trade. Basic sciences based efforts including engineering and medicine rely on robustness of evidence and replicability while social sciences like politics often include ambiguity. Over Covid-19 pandemic earlier, both appeared to be converging at best and now potentially even seem clashing. Dichotomy between the clarity of science and the ambiguity of politics raises more investment risks than capital markets appear willing to incorporate.

We regard distinctions between types of central bank intervention as ones of semantics when compared to the reality basically of yield suppression. For investment purposes, the anchor of capital markets has been return on savings with efficient transmission of risk and minimal interference. Among some demographics as happened in Japan, minuscule rates may actually boost savings to buttress nest eggs. Central banks may not be as precise as market momentum appears dependent upon.

Corporate results will soon flow. Recent assessors including the IMF, the Fed, the BIS, the OECD and the World Bank stress overall growth recovery is likely to be fractured and protracted with debt burdens rising as risk, especially in a second Covid-19 wave. Fracturing of global trade could depress productivity slowdowns further. Amid central bank intervention, liquidity and long term solvency have yet to play out for capital markets. Contrary to momentum alone, risk premiums capital markets and valuation of equities in particular depend on the level and sustainability of long term growth, not least quality.

Composition notwithstanding, recent valuations appear to be conflating expectations of bounce back momentum implicitly with sustainable growth levels akin to those of pre-2008. If so, momentum activity in fixed income and equities would be justified, including into the lowest quality as recently occurred. Instead, we expect heightened volatility. Unlike recent aspirational decades, the consumer appears likely globally to be more fractiously challenged . We espouse diversification that includes precious metals exposure and short duration cash. We favor focus on quality of delivery (including on debt management) across asset classes. For balance, we favor strong Financials, Healthcare and Info Tech for delivery but also Energy, Industrials, and Materials for recovery exposure..   StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e.