Eight Non-Consensus Views
Monday, December 19th, 2022A bearish consensus can still be complacent
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Probability-based investment modelling for professional and institutional investors
US cash deposits are a neglected asset class. Our models suggest that US Treasuries, Gold and Investment Grade bonds have a low or no-better-than-evens chance of beating cash on a risk-adjusted basis. If you don’t have to own them, you should be reducing your exposure. Our numbers do not include the risk the Fed decides to surprise on the upside in 2017.
This is the second part of our exercise looking at ways in which investors can diversify away from the threat of falling US Treasuries. This week we focus on global equities and argue that the best protection is offered by Greater China (including Taiwan and Hong Kong). This region is also on the positive watch-list in our All-World Country Equity Report.
We think that the best way dealing with falling Treasuries is to stay in fixed income and to seek out situations in the credit markets, which are priced for high levels of risk, and where volatility is still falling. The problem with reducing duration or buying inflation-linked bonds is that the Fed and other central banks can force you to unwind it if they want to.
Don’t waste time worrying about all the things which could go wrong after Brexit. It’s better to focus on areas where there is potential for positive returns. We maintain our exposure to a broad spread of US fixed income and are adding to Emerging Markets in equity and fixed income. Find the safe, deep water; stay away from the rocks.