On the heels of the rally in global stock markets, today one of the greats in the business sent King World News a powerful piece discussing the short covering action in key markets, Glencore and more. There is also a note from Tony Crescenzi included in this piece.
From Art Cashin’s note: “A note of Anticipation – Tony Crescenzi of Pimco put out a piece about how just the anticipation of a Fed move has caused markets to react. As is typical of Tony, it is insightful. Here’s just a bit:
Investment implications and lessons for investors from this year’s tumult
There are five primary investment implications and lessons for investors to draw from this year’s tumult in the global financial markets:
Rates are likely to stay low for longer: In keeping with PIMCO’s New Neutral thesis, the Federal Reserve has demonstrated that it is likely to take a very gradual and cautious approach to its normalization of interest rates. Policy rates, globally, are likely to stay low through the rest of the decade, supporting equity and credit markets, as well as real assets.
Volatility will result from the unwinding of crisis-era policies: Markets have become accustomed to, and somewhat dependent on, central bank support, particularly in the absence by national governments in efforts to bolster economies. Even the threat of removal can cause upheaval in markets.
Economic growth, rather than liquidity, is needed more than ever to bolster asset prices: With the Fed no longer adding financial liquidity into the U.S. financial system, and the Fed’s balance sheet shrinking as a percentage of the U.S. gross domestic product, investors are likely to focus more than ever on economic growth and company cash flows when making investment decisions.
The interconnectivity of global markets is greater than widely understood: When constructing an investment portfolio, we believe it is important to focus on risk factors (equity, interest rate and currency, for example), and to understand how financial instruments might correlate to each other under various scenarios (including stress scenarios) in order to optimize return prospects.
Divergent central bank policies reflect the multi-speed global economy: In the current global economic recovery, many nations are on different paths or moving at different speeds along the same path. As demonstrated in 2015, this presents investors with a broad array of both risks and opportunities requiring active management of portfolios in order to optimize portfolio returns in a low-returning investment world.
Overnight And Overseas – Global markets are seeing a strong surge in prices as this volatile quarter comes to an end. Converting all the equity moves to Dow equivalent prices, here’s how things look: Tokyo +432; Hong Kong +224; London +332; Frankfurt +388; and Paris +403.
Among other assets, gold and oil are little changed. Yields are a smidge higher as are most emerging market currencies.
Consensus – This end of quarter global rally appears to have a large dollop of short-covering in it. As an example, VW and Glencore are spiking in Europe. There is even buying in copper and other base metals. The only drawback is that the volume on these rallies is not huge. Keep your eye on crude again as well as biotechs. Stick with the drill – stay wary, alert and very, very nimble.” ***ALSO JUST RELEASED: Richard Russell – Devastating Bear Market To Destroy Current Monetary System CLICK HERE.
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