Markets are never as bad as you fear, but never as good as you hope. The Threat Board has seldom looked so complex: we can try to predict outcomes, but its notoriously difficult. The list of potential ignition points seems to be expanding exponentially: Energy Prices, Oil, Inflation, Stagflation, Supply Chains, Recession, China, Politics, Consumer Sentiment, Business Confidence, Property Markets, Liquidity, Bond Yields, Stock Prices.. you name it and someone is worrying about it.
Markets are full of noise about everything from inflation, risk, leverage and politics, but the reality is we are approaching “Peak Speculation”. It doesn’t mean a crash in imminent, but that investment strategies and approaches are going to have to factor in a new reality, and be far more suspicious, questioning and smart as a new reality takes hold. The consequences of QE and other factors that fuelled the speculative age could be with us for decades.
As Greensill and Archegos roil markets and cause losses, they beg the question – who is next? Why is 2021 turning into the year the scams are unravelling? Will leverage on leverage trigger wider implosion or will it be something else, like liquidity?
Central Banks are playing the “lower for longer” interest rate card to reassure markets on growth. There are always consequences of such actions – ranging from bubbles, delusion and fraud. Eventually consequences trigger change, and reassessment – which is driving the rotation from Hope as a Strategy Tech into Fundamental stocks – Autos are a good example.
There is an old market rule – don’t fight the Fed. Jay Powell has been crystal clear: rates are staying lower for longer. But the ongoing sell-off in Treasuries, and rising global bond yields, paints an interesting story of a market unconvinced rates can be held down