Note Précis June 27,2019: Irregular Volatility Flareups- Amid recent capital market behavior, central bank stances and political developments worldwide, we reassert that diversification is needed. Assets like precious metals and cash should be part of an investment portfolio. Quality has relevance, irrespective of instant gratification. Perceived liquidity is not equivalent to real such.
Over three decades, the fixed income cycle has evolved from broadly high risk premiums, to then focus on credit quality, then to 100 year bonds and now to at least four major sovereign credits having negative yields complete with suppressed U.S. Treasury yields and broadly low risk premiums. Equity valuation seems currently asserted as dominantly linked to fixed income and less so delivery of growth. It is almost axiomatic that in investment banking, tactics continue until they manifestly break down. It was true of eras of sardine tin trading, of leveraged buyouts of mattress companies and of attempts to slice and dice risk such as within subprime mortgages.
Key Federal Reserve Congressional semiannual testimony looms on July 10,2019. In central banking, leadership was wrested by the 1980s primarily by the Federal Reserve towards financial conservatism and then to cohesion post-2007 on liquidity as short term fix. Now in mid-2019, markets are seemingly espousing leadership as being that of the Bank of Japan and the European Central Bank in the form of negative rates. Recent central bank commentary suggests a shift back to ease in the United States and the Europe in particular. The markets response has been away from readjustment and back to reversion to risk-off exuberance. Still, currency volatility has encompassed emerging and now is likely for benchmark currencies which would buttress precious metals.
In global politics there appears tension ahead of the G-20 in Osaka for June 28-29, 2019. Populism of either wing appears internally at crest from Brazil to Turkey to Europe in actual elections and in U.S. polls ahead of its November 2020 elections. Still, a cohesive global alternate seems absent. Equally for potential unintended consequences, the United States seems ignoring a basic tenet of not fighting concurrently on multiple fronts but instead appears belligerent on trade with China and even allies as well as being so with Iran over a fraught but crucial Levant crisscrossed with global shipping lanes. 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.