All posts in category: Real Yield (2)

The Unreal, Real Yield

Friday, September 16th, 2022

Inflation expectations in the US are still too low.

There is a big mismatch in US inflation expectations, with 10-year breakeven rates anchored around 2 percent, survey data at 5 percent and core CPI at over 6 percent. We think the latter figures are far more realistic, which means that the US fixed income and equity markets could be in for a nasty shock. We also think that global currency markets are becoming disorderly and that the yen, euro and sterling will all test historic lows against the dollar. It’s not a “sell-everything” strategy, but it is closely related. There may soon be an interesting opportunity in EM Equities and EM Bonds. The last bull market in EM Equities started about three months before the dollar index hit its last high in late 2001 and we see other historical parallels which spark our attention,

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Something Is Going to Break

Friday, May 13th, 2022

Volatility has entered the danger zone.

Realised volatility continues to march higher every week and we have now got to the danger zone, where this creates the conditions for more volatility – especially if the FOMC is committed to much tighter monetary policy. In these circumstances, traditional valuation metrics lose a lot of their power and investors should assume that markets in one or more major asset classes will become disorderly. We think this has already begun in Nasdaq, Italian government bonds and the Chinese yuan. Other assets, which may follow in due course, include US High Yield, credit ETF’s and US housing.

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