As for any economic indicator, monetary polices can be viewed from two interdependent yet different angles:
A major “price” signal took place two years ago, announcing the debasement of major fiat currencies and the awakening of gold. Since then, gold has spiked 40%. A “volume” signal took place just one week ago, announcing a second wave of world liquidity in USD intimately correlated with the second wave of the COVID pandemic.
The consequences of the “volume” signal on asset allocation (if it lasts) could be as significant as the one on “price” some two years ago.
For the first time since the end of the subprime crisis in 2009, the S&P 500 book stopped growing on December 31st, 2020 over 12 rolling months. The US market momentum is therefore fully supported now by intangible value.
Since the 1980s, OECD government bonds have tended to be negatively correlated with equities, but during the pandemic that relationship seems to have broken down. Given that the Federal Reserve is embracing a new policy framework aimed at juicing up inflation, there are plenty of reasons to think that bonds cannot continue to play an “anti-fragile” role in portfolios. In this first installment of a two-part series looking at what…
Unconventional monetary policy has led to the largest bond bubble in history; some 15 trillion dollars’ worth of debt globally, now providing negative yields. Bond holders from developed economies may have reason to worry about the future of their savings. History tells us, however, that perhaps they should simply put their feet up, and take a look at less crowded bond markets for inspiration.
As the year draws to a close, we have taken time to reflect on our Theory of Financial Fragility. As its track record develops day by day, it has highlighted certain lessons. In the new year, we recommend paying close attention to the two best-remunerating currencies of the past twenty years; Gold, and the Chinese Yuan. Their leadership will soon become particularly symbiotic.
The three trillion-dollar hedge fund industry has spent the past decade traversing a barren desert, experiencing disappointing performance and dried up returns. An oasis, however, may be in view!
Balanced investment portfolios intuitively combine fragile assets, such as most equities, and antifragile assets, such as government bonds from developed economies or precious metals, gold or silver. However, how does one choose the right antifragile asset? The answer depends on monetary policy.
One of the notable financial events of 2019 was the switch by major central banks to a ‘Keynesian-type’ global monetary policy. Keynesian polices target the ‘euthanasia of the rentier’, so we know quite well who is likely to suffer from them. The question is, however: who benefits from the crime?