Note Précis February 26,2019: Considering The Tides of March – Since 2009 with fleeting deviations, capital markets have come to be fixated on central bank policy, especially from the Federal Reserve. Its Semi-Annual Testimony to Congress of February 26, 2019, signals interregnum in rate increases and balance sheet reduction. Central banks may be anxious to not prematurely raise rates as happened in the longest standing quantitative ease program of Japan. Prolonged ease there coincided with a decline in its world beating status in myriad industries, governance scandals and the tarnishing of quality standards, admittedly for many reasons.
In the tides of March 2019, capital markets may have a much less robust favorable response to lessened progress towards containing credit than in earlier in this cycle. After all, global growth appears slowing, within and as a whole. Furthermore, trade and geopolitical tensions as well as terrorism responses are not issues with solutions in a month but instead, are a process.
There can be little doubt that yields are extremely low in many benchmark sovereign issues. Phraseology such as equities not being extremely expensive may offer solace to the momentum participant but not so to the value investor. Much less commented upon for instance, is the appropriate stratification of equity valuation versus the long term delivery of growth. Even in ostensibly defensive consumer staples (and globally elsewhere), business imperatives loom as being brand and business pruning.
In asset and equity mix, being overweight benchmark seems appropriate in cash and alternate hedging via precious metals. For markets overall, we espouse focus on quality and of Financials as being crucial in leadership.