I have lived through recessions and bear markets; I know what they look like. I wish I could forget what they feel like. They don’t come out of nowhere; there are always warning signs. Many investors choose to ignore those signs; I choose not to. I hope you make the same choice.
We see a strong case for convertible securities at this point in the market cycle along with our expectations going forward.
We suspect that the Fed has already lost substantial credibility, but that investors prefer to look the other way as long as financial-asset values remain intact. It is, in our opinion, an “everybody knows the dice are loaded” situation that could portend an even sharper, impossible-to-escape downdraft once confidence is dislodged.
What’s often missed in the “low interest rates justify higher valuations” argument is that this proposition assumes that future cash flows and growth rates are held constant.
I will illustrate how a regime-based framework can protect capital when markets deteriorate, while adding value when conditions improve.
Any news that emerged from last week's G-20 Summit in Hamburg, Germany was bound to be overshadowed by the high theater of the first-ever meeting between U.S. President Trump and Russian President Vladimir Putin. As a result, the biggest actual development from the Summit garnered very little attention in the American media. In fact, it did not involve America at all.
Fully 1.4% of the 2.0% average annual real GDP growth observed since the beginning of 2010 has been driven by growth in civilian employment. As slack labor capacity has slowly been reduced, the unemployment rate has dropped from 10% to just 4.4%. That jig is up.
While there are bright spots, without major reforms the economy will drift lower, toward stall speed. Any outside shock – and several may be in the offing – could push us into recession.
Performance in the bond market in the first half of 2017 was characterized by a lack of inflation, optimism about economic growth reflected in both equity markets and credit spreads and a seemingly insatiable demand for yield.
Understanding the interplay between credit and finance is critical to recognizing the signs of economic distress. Yet this was precisely the failure that plagued economic analysis leading up to the financial crisis. Let’s take a look at the recent history of credit, finance and the underlying nature of market stability.