Uncertainty Breeds Returns (Guest Post)
An increase in uncertainty in the global markets has exacerbated the dollar bull market and market outperformance.
This post was originally posted here. The writer, Kyith Ng is a veteran community member and blogger on InvestingNote, with a username known as @kyith and has 1091 followers.
With the FED having a mandate to hold the short-term interest rate for a prolonged period of time and their willingness to let inflation run above 2%, it makes us wonders if interest rates would ever tick up amongst the uncertainty.
BCA Research points out that in the past 30 years, there has been a strong link between major moves in real 10-year yields and the amount of excess savings in the economy.
Currently, the gross private savings have been very well boosted by the fiscal stimulus but also that people tend to become more prudent when things are uncertain.
As people’s salary regain traction and consumer sentiment recovers, it is likely the savings rate will decline and perhaps yield might start moderating upwards.
I am thinking less about the REITs but more about whether the insurance companies and the finance company can finally have some yield spread to play with so as to earn some interest income. This would change the picture for the financials and insurance company as to whether there is a catalyst for the share price to do well.
BCA has this idea for people to remain overweight global equities in your core positions but it would be good to pair with a portfolio of stocks to short. These are the stocks that are particularly vulnerable if the market corrects.
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