The interview covers our view of the Financial markets, precious metals and the importance of having a balanced asset allocation.
In addition to running client specific mandates, we now manage a number of market Strategies, including FoHF, Global Equities, Disruptive Technologies and Balanced. Our FoHF strategy continues to perform well and offers low correlation to the Equity and FI markets. The Balanced strategy is, we believe, a perfect solution to those that wish to remain fully invested, but are a little cautious on the equity markets and want some diversification of growth, yield and inflation protection.
Our latest thoughts:
Will they …won’t they? As I write this, the speculation is rife that some form of deal will be found on the China/USA trade issue. It’s a big deal to the markets, but is it likely that a real longer term solution will be found? We think not and that, if anything positive comes of it, it will likely just be a token action.
So where does that leave us?
There is a lot of smart research out there, such as Russell Napier’s that is extremely bearish. His last piece highlights that he sees a 50/50 chance, as he puts it, of a systemic banking crisis across 27 countries in the next 3 years. He sees four of these to be in the Eurozone. And you thought I was bearish?
He also doesn’t see any form of trade deal and, unlike most market pundits that expect Trump will need a deal to win the election, he takes the opposite view, that Trump will play the patriotic card. I feel there is some truth to this given that the discord between the US and China runs far deeper than just trade. Furthermore, for Trump’s trade policy to have any effect, tariffs need to be in place for at least a few years for capital to shift and be re-allocated appropriately. The US is also looking at potentially restricting capital flows into China and has also floated ‘currency manipulation’. On the latter, the other risk Napier sees is for the CNY to drop its ‘peg’ range to the USD and free float, which would probably mean a much weaker currency and increased risk of deflation.
The market bulls on the other hand, see a resolution to trade and expect easy monetary policy and, if need be, increased fiscal spend to support risk assets higher.
Were do we sit? Intellect sits in the bearish camp. The analysis is deeper and the logic often sounder. But markets tend to muddle along for a long time and the positive sentiment that an outcome will be found, keeps them supported.
We are thus cautiously positioned, but not short risk assets at this point. Sure, there may be increased volatility, but with central banks cutting rates and re-starting QE there is plenty of liquidity to support risk assets. At least for the next quarter or two.
Were we see real risk, is when the market awakens to the fact that CB action, negative rates and QE are not a panacea. Indeed, how long will depositors keep their cash in the bank at negative rates? We would expect to see deposits flow into high quality yield plays and into precious metals. Weak banks though will equate to a weak money multiplier, which will be a headwind to any recovery.
So we manage our various mandates with the mindset of investing for the current environment, but being flexible to adjust rapidly should the environment dictate it. With this in mind we are advocating clients positioned in Equities, to shift some of that exposure into a Balanced Strategy. This would be a combination of high quality equities, fixed income and precious metals, so offering some exposure to growth, yield and inflation/deflation protection.