This Week in the Market
With Scott McCaghren and Tony LaPorta
Much has happened over the last several weeks that has impacted the overall investment field. We will discuss several of the major headlines that appear to be fueling these rapidly changing markets.
In regards to the equity markets, the rumors of decreasing interest rates have most certainly added “fuel to the bullish fire” for major indices. TLP and I often discuss the attraction that the stock market has to historically low interest rates. One particular reason for this is because of the lack of competition for investment dollars when “risk-off” asset classes are low-to-no yielding. This has created an unusual environment considering the 11-year bull run compared to the average 7-year cycle. Couple that with a historically low interest rate environment off of the heels of the creation of quantitative easing. This brings us to the next point…
We implemented a hedge on April 23rd along with many other adjustments to the overall portfolios. We discussed in the audio portion of the commentary about the effectiveness of this hedge. It has obviously been a strenuous decision as to whether it be appropriate to continue the duration of this position. In rare fashion, all analysts derived the same conclusion…the most prudent investment decision against the current landscape is to maintain our current allocations. The justification for this was simple…equity positions are making record highs while the hedge maintains a positive return. In other words, why sell the hedge now when we can keep that card in our back pocket for an inevitable rainy day.
The typical “flight-to-quality” products such as gold and bonds are waving a huge warning flag. They have jumped higher harmoniously with the equity markets which is indicative of a counter-correlation. This means there is some serious investment dollars that are shifting into safer asset classes in preparation for something. That something could take months to unfold but these asset classes are telling us to pay careful attention. This is another important reason as to why the unanimous decision was made to maintain our current hedge position.
We believe that the current stature of the portfolios is well founded. All of our holdings appear to be responding to the current environment as expected, and further compliment the volatility hedge very well. Summer months tend to be very quiet in nature which can largely be attributed to the lack of global participation. This should provide an opportune time to allow our stable/dividend positions to produce the income portion of the portfolios. In the case that a surprise should happen…i.e. tensions in the Middle East become red hot (Iran shot down a U.S. drone overnight), trade talks with China deteriorate or our own Federal Reserve decides to throw a curve-ball; we have a hedge in place.
As always, we continue to monitor all equity, treasury, commodity and currency conditions in order to efficiently deploy capital as well as PROTECT invested assets.
Click the link to listen to Scott and Tony discuss this week's market
Have a question ?