By Steve Blumenthal, CEO, CMG Capital Management Group
“Negative-yield bonds now account for some €1.5 trillion of debt issued by governments in the euro area, equivalent to almost 30% of the total outstanding. Many expect even more of the global bond market to fall into negative yield territory. Half of all government bonds in the world today yield less than 1%.” – John Mauldin
My personal view is that zero to negative rates will continue to drive money into risk assets. What does a European do with negative rates, a sovereign debt crisis, bank risk and lost confidence in government authorities? Smart money moves to where it is treated best and that is likely to be U.S. equities. So the aged and expensive cyclical bull can grow to be even more aged and expensive. But the snow is deep and mountain unstable. Which snowflake trips the next slide has yet to be determined.
So step forward with your equity exposure hedged and mindful of the elevated risk. Keep a close eye on the market’s primary trend. Price can tell us a lot about supply and demand. I favor Big Mo and 13/34 Week Moving Average (posted each week in Trade Signals). Include within your portfolio(s) a small handful of alternative strategies (defined as anything other than traditional buy-and-hold stocks and bonds) that demonstrate low to no correlation to stocks and bonds. Today, I believe we are in a participate but protect environment. Great opportunities present when markets dislocate. And dislocate they will. Let’s not get run over on the way to the opportunity.
See the full story: On My Radar: Inflation and The Big (Bigger) Short.
The objective behind all of Steve Blumenthal‘s work is to help advisors build better portfolios by allocating with a long term game plan that is risk sensitive and properly diversified. Mr. Blumenthal is a self-proclaimed “quant geek” with an analytical mind for the markets that helps him connect with everyday investors and industry experts alike. See CMG Capital Management Group.