PPT Name xxx
Tactically cautious -we remain sellers of any rally in equities and/or commodities. Bonds will rally further.
–markets are reacting “normally” to deteriorating growth data. Growth is self
sustaining but not “V
.Growth risk bring other problems to back to light (overleveraged governments/consumers, weak labor markets and incomegrowth).
Markets are in a traditional post “financial” crisis world –
they will remain range bound for an extended period (aka 1968-1982)
Range bound markets are highly “growth” sensitive –
momentum and direction matter.
QE3 will be a “candy” high for equities but a “”cavity” low for bonds (equities only see the pros, bonds only see the cons).
don’t think its coming soon. If it does, then the driver of a QE3 decision –
will take equities lower and bonds higherin the interim period. 5 factors will make any QE3 decision tough: 1) political opposition/internal disagreement; 2) Core inflation ismoving higher; 3) belief economic weakness is transitory; 4) credit creation remains weak (low rates not enough); and 5) labormarket data is stronger. Alone, QE2 is not an end to risk asset performance but a growth rebalancing accelerant.
EM’’s are close to taking the mantle from DM’s –
but not yet. All risk assets are facing continued headwinds and we are notbuyers on valuation grounds. Equity performance is not about value but about growth and inflation clarity.
DM headwinds rising
weak data momentum, earnings risks rising, policy normalization already underway. Developed marketsare not in a sustained bull market despite performance from 2009 lows (structural problems have been papered over but notsolved).
EM headwinds are close to abating -Emerging markets did not break their structural uptrend, but we have been less bullishrelative to consensus. Expect EM equity correlations to continue to decline further. Fundamentals and position in inflation/growthcycle are vastly different. Country allocation will differentiate returns in 2011. Asia/EM flows susceptible to additional capital
controls as currency appreciation continues. EM’s still reliant on functioning DM capital markets.
Tactical Caution but Cyclical Resilience