Goldman Sachs latest Top of Mind publication is about the bond bear market, and there are a number of opposing views on whether yields are going to continue climbing, or if inflation is going to accelerate or stay under control.
One of the most bearish views on bonds came from Paul Tudor Jones, the founder, CIO and principal of Tudor Investment Corporation, which has c$11 bn of assets under management according to Pitchbook.
Here are some of the most interesting quotes in the interview.
Total assets held by major central banks are above $20tn. While Fed’s balance sheet has stabilized, the balance sheets of ECB, Bank of Japan and Bank of China have been increasing steadily.
Of course, the reduction in Fed’s balance sheet, expected to effectively start in 2018, will have a material impact on financial markets – the recent spike in volatility might be seen as a sort of recognition of that fact.
But global monetary base is still growing, which will in the end limit the potential for higher rates going forward and sustain high valuations in financial markets.
The USD has moved from « bump » to « dump » according to William R. Cline at the Peterson Institute. While the USD jumped right after the election of Donald Trump as US president, the currency has been declining since Dec 2016.
I attended a quite interesting presentation yesterday organized by Schroder on emerging markets. Two fund managers presented on equities and debt. The head of EM debt absolute return strategies had a very interesting analysis of the current environment.
Per SocGen’s real good quant team led by Andrew Lapthorne, « the use of the ‘Fear Index’ (VIX) as a predictor of future market performance has been rather mixed, with moves in VIX appearing more contemporaneous than forward looking. »
Well if VIX is not a great predictor of market returns what is ?
Markets have been unnerved by rising interest rates in the US, with ripple effects around the world. The most staggering event has happened on the VIX market with a number of funds/ETNs making the headlines after having lost tons of money. What should investors take from these events ? A couple of reflections and interesting comments seen here and there. Continuer la lecture de « Putting Recent Market Sell-off in Perspective »
Volatility is the most disturbing factor in financial markets and it’s something people should always keep an eye on. Measured by popular metrics like VIX or VSTOXX, it’s assimilated to the « fear indicator » of investors.
Looking at the long past of the US equity market (S&P 500 in chart below), you can see that volatility goes in regimes that can change widely but rely mainly on macro environment (expansion/recession) and it’s impact on the psychology of investor (P/E or valuation).