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Having considered for some time the most appropriate metaphor for the current market environment, we think this may be it: one may be doomed, but one can still party on.
Having already hit the iceberg, one major problem we see is the common perspective for both investors and the asset management industry to view debt and equity as the entire universe of investor choices available.
The reality is (a) that investors can pursue other distinct types of assets (we would single out real assets as an obvious and relevant alternative), and (b) that there can and will be times when both debt and equity markets together underperform, in both relative and absolute terms (the relative benchmark being cash since developed government debt can in no way now be considered a risk-free asset class).
We may be fast approaching a macro environment that threatens conventional portfolios with exactly that outcome– a bear market in both stocks and bonds simultaneously. In other words, the authorities could attempt to throw a bull market party for both bonds and common stocks, but nobody would show up. The ticket to entry is simply too expensive.
Having long exhausted the armory of conventional policies to keep the unsustainably indebted show on the road, increasingly desperate politicians are doing increasingly desperate things, be that gifting money to the IMF in a brazen display of fiscal denial that we can ill afford (US, UK) or simply stealing from other sovereigns (Argentina).
Project ‘End Up Like Japan’ continues to advance well throughout the western economies. The euro zone continues to perform like a group of drowning men lashed together for buoyancy..."
